Editor’s Note: This is the transcript version of the show we recorded on Wednesday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to watch the show embedded above, listen to it below or on the go via Spotify or Apple Podcasts.
Bring your questions and join us live every Wednesday at 12 pm ET.
Daniel Snyder: Welcome. Welcome to Stock Market Live.
Austin Hankwitz: I like to cheers. Do you hear those cheers, Daniel, cheering us on, get us excited and talk about the markets, man. Oh, yeah, we got the tunes going, we’ve got the attendees rolling. I’m seeing Mark. I’m seeing Brian. I’m seeing Sam and Skip and Joe, Jessica, George, Keith. I mean, these names go on forever. I love it.
Daniel Snyder: That’s right. Welcome everyone to Stock Market Live. We appreciate that you’re hanging out with us here live for this lunch hour if you’re on the East Coast. If not, I mean, look, man, we’ve mentioned this before, we have people all around the world listening to this.
We have – I don’t know if you know this. We’re on Apple Podcast now. So if you guys are listening there, we have tons of streams and replays coming through after the episode airs. I can’t thank you guys enough for listening. But leave us a rating. Leave us a review. Help us climb the charts. Be those people that were like, yo, I’ve been there since day one. We appreciate you so much. Go ahead and hit that up.
Before I – before we dive in…
Austin Hankwitz: Before we jump into that though, Daniel, I think what could be really fun and interesting, as I know, we’ve got dozens of people who’ve been rocking with us for the longest time, right? They’ve been in the trenches with us growing. But why don’t we make an inside joke for the ratings. Why don’t we figure out a way for us to kind of pay homage, right, to our day one fellows out there, fellows, Felistas, everyone who has been rocking with us. Let’s pay homage to them. So hit us with, I don’t know, maybe an emoji or something that that we know that they leave right now and we know that they were rocking with us for a while.
Daniel Snyder: Josh?
Austin Hankwitz: Maybe it’s a ticker. I don’t know. I don’t know.
Daniel Snyder: Josh, what kind of emoji? You got the options over there in the chat. I’m going to leave it up to Josh, the man that rock in the background of the show, makes everything come together while we do this. Josh, throw a little emoji, emoji in the chat for people. And if you’re here watching the episode, you’ll see it. And if not, you missed out.
Austin Hankwitz: Yeah.
Daniel Snyder: So it’s live and hang up. Obviously, guys, we love interacting with you during this show. So, of course, jump into the chat. We want to hear your questions. We’re going to go into over two stocks. Today, I’m not going to tell you what they are yet. We’re going to get there. We got two stocks. They’re competitors in the same space. One has been around forever. One has more recently just gone public. There’s a lot to dive into.
I know which one I’ve already – I’ve got my mindset. If I had to choose between the two, I already know which one. And then, Austin, I’m sure you probably do, too, but we’ll get into it.
Austin Hankwitz: Yeah, for sure. For sure.
Daniel Snyder: Before we get into overview of the market, quick little mention for everybody right now. If you’re listening to this, it is November 16, 12 PM, of course. Right now, Seeking Alpha is having their Black Friday sale, 50% off premium. I got to mention that. Josh, please throw that link in the chat and we’ll also add it to the article as well. If anyone’s interested in it, go ahead, check it out. It’s only for a limited time.
Now, let’s take a quick look at the markets because it’s been a wild week, hasn’t it? Ever since…
Austin Hankwitz: It’s been very interesting, right? I mean, we see the inflation report come in just slightly below expectations. And I mean, you’re seeing this green candle come out of nowhere because of that. And then we see things come down and we’re going back up. And then what was with, like, at the end of the trading day?
I think it was yesterday the day before the markets just tanked, I don’t know. I – we’ve been all over the place. So walk us through the gaps. Show us what the lines are doing? What’s going on, Daniel?
Daniel Snyder: Now here we are. Of course, we’re starting off with the Volatility Index, the VIX, which is not perfectly inversely correlated to the SPX Index, S&P 500, but it’s pretty darn close. So we keep an eye on it just to see what the at-the-money option players are doing.
Obviously, we’ve seen this massive drop. We still have that gap way back here from August that we’re waiting to see if it’ll fill, seeing a lot of volatility just decompression of the market right now with CPI print, sentiment, everything going on.
Here’s the dollar. Of course, dollar was the most overcrowded trade probably in most recent months just seeing it completely fall off the cliff, broke directly through my level here that we pointed out the other week, broke through the bottom trend line as well. But it’s looking like we’re starting to get a little consolidation here.
So this could either be a reversal point or a continuation. We like coils. We like coils. We like to take a second and see let everybody get a breather and see where we’re going next. Obviously, that’s inversely correlated with the emerging markets and international trade and everything else, so we definitely want to keep an eye on that.
The other one…
Austin Hankwitz: Daniel, if I could jump in here for a moment. While we have the dollar up on the screen, I think what’s really interesting is that I made a video about this on my TikTok. So if you’re not following me on TikTok, go follow your boy.
But I made a video about how because of these foreign exchange headwinds and then the currencies and things of that nature, these multinational companies are seeing FX losses to the tune of with Amazon (AMZN) $5 billion last quarter, with Netflix (NFLX), I think, we talked about this on a show a while ago, but $1 billion in foreign exchange headwinds for – is predicted for the year of 2022 because of this couple – for this company.
So, I mean, like, we see the rising dollar and we see, like, how this chart goes when parabolic. But we don’t really, I guess, quantify or conceptualize how this impacts the companies we know and love.
Daniel Snyder: Yeah. That’s where it really pays to know the companies that you’re invested in, right, and how much of their revenue comes from foreign sales. Definitely something to watch right now.
Now the other one I wanted to throw into the mix this week, brand new, because of all the news going on and Austin, I’ve got to ask your opinion on this. This is Bitcoin. I was talking about crypto. Personally, you know…
Austin Hankwitz: Oh, yeah.
Daniel Snyder: Crypto. You have Chainlink, which you said time and time again that you’re into. But, I mean, with FTX, this complete just demolish of value. It seems to be stabilizing here a little bit, but we’re seeing exchange after exchange come out. I mean, we had BlockFi yesterday. One just was announced today as well. They’re dropping like flies. So I’m wondering, do you think this is going to continue to drop like a fly?
Austin Hankwitz: So I vividly remember and I think it was – the short answer, yes, I do. But long answer is, I vividly remember and the COVID bubble of 2017, 2018, right, I think we peaked, like, on Christmas day or something or, like, couple of days after January, right, when we hit that 20,000 mark in 2018.
And I remember it all coming crashing down and it kind of stopped around this like 8,000 range. And we kind of saw some support. We saw a little bit of a rally. We saw some excitement. We went from 8,000 to 10,000, right? And this was maybe five months later, maybe eight months after the peak. It’s over, guys. We’re back at it. Let’s run. Let’s get it by the dip, by the dip. It’s game time, and then it crashed to 3,800, right?
And so, like, I – I’m not – I can’t predict Bitcoin. I can’t predict what the market’s going to do. But in my humble opinion, it just feels too early given all the downside momentum we’ve seen with FTX. And we’re going to talk about that, Daniel. It’s actually one of the questions I have for you with the first takes bullish or bearish.
But I just I think it’s too early. I think there’s too much uncertainty. I think there’s a lot of and not just with Cryptocurrency. Obviously, I think, like a lot of people are preparing for some sort of recession. There has been a lot of talks about credit bubbles and low savings accounts, right? There’s a lot of things happening that don’t feel as frothy and fun as they did when we saw Super Bowl commercials of the little QR code with Coinbase going across the screen, right? So different times, different prices.
And with that being said, though, I am accumulating the cryptocurrency I know and love, and that is Chainlink. I just bought more of it yesterday. It was like $200, right? That’s right. Hey, put it in there.
Daniel Snyder: There you go. [Cross Talk]
Austin Hankwitz: …I tweet about it sometimes, but I’m accumulating ones that I love for long, maybe this is a good time if you’re into allocating a small percentage of net worth to cryptocurrency, now it could be a good time to start for you.
Daniel Snyder: All right. And I was just looking at why you were speaking and talking about that. The one this morning that I could remember was actually Genesis, and they came across saying…
Austin Hankwitz: Yep, yep, yep.
Daniel Snyder: … FTX has created unprecedented market turmoil, resulting in abnormal withdrawal requests, which have exceeded our current liquidity. So obviously, not a good sign for the overall sector. But, I mean, if you can find the right protocol as the right projects, we just had the crypto webinar with Omen Mallikin that I’ve told everybody about, that was just yesterday. And he was just like, look, Bitcoin and Ethereum, they haven’t had any issues. So, no, maybe it’s a good entry point. Me, personally, still not my jam.
Let’s take a quick look at the SPY ETF, get into the S&P 500. Look, I’ve left this on week-over-week. You’ve seen the downtrend lines. You see the bounce right here off the gap. Guys, this is why I highlight the gaps. I mean, look at this. This is like to the tea. It’s almost like…
Austin Hankwitz: Yep. That’s a…
Daniel Snyder: …like a few months ago, we bounced right off the 200-day moving average. Now we’re bouncing off directly off the gap bottom of the gap, sorry.
And the other thing that I just pointed out the other day to Mike Saul here is if you go to the weekly chart, okay, and we look at their most recent downtrend and I pulled these Fibonacci retracement from where they hit that 200-day down to the bottom of the move, boom. Resistance at the 0.618 Fibonacci level.
Guys, I tell you, this is my favorite level. The 50% also matters. But 0.618, it is the golden ratio. It’s weird how it just works the majority of the time. My hypothesis is that quant trading machines that are probably programmed to do this. I don’t know what it is. I don’t care what it is. It’s what the charts tell me. So obviously, that’s why we point out the Fibonacci levels. That’s on the weekly time frame. Just to remind you of that.
Austin Hankwitz: So what’s the chart telling us in the near future here? I’m seeing some data. I’m seeing some movements.
Daniel Snyder: In future, we’re seeing this – that we’re seeing this move to the upside, right? And we see that we’re coming up against the down – the long-term downtrend line. And obviously, we bounced off the gap and we did a little peak above and pulled back. So, the next day or two to wrap up the week, we might literally just trade sideways or come up and just push against those resistances.
Now, what I want to see is I want to see what price action does as we’re getting into this little corner that we’re actually entering into because if the bulls can’t overtake here, I’m going to go back to my trend line. If the bulls can’t overtake here and breakthrough this downtrend line to make it move higher, and then we get a breakthrough the bottom of the gap, then very well possibly, I mean, this 20-day moving average, the 100-day moving average, I would expect a first bounce down here at the 100-day being next resistant point.
And if it continues to fall for whatever reason it might be, I mean, yesterday, people were freaking about the Russian missile that landed in Poland killing two people. Like, there everybody’s on edge, just looking for something to go wrong right now. So that’s kind of where I’m like, okay, well, let me see what price action does. Let me see how things unfold.
And I don’t know if you remember this. But last year, do you remember Thanksgiving week last year, the short and trading week and how the day before Thanksgiving, the market just collapsed.
Austin Hankwitz: I do remember that. Yeah.
Daniel Snyder: I am not saying that’s going to happen again. But the short trading week could definitely be a factor next week. So keep that in mind, guys. So that it could honestly go either way here. And that’s why it’s just kind of like at this point, sit on hands, SOH. Sit on your hands. Wait to see where the price action takes. If we break through, then you’ll see more short covering coming into the market. That’s probably where we’ll fill the gaps going up toward the 200-day moving average again. If not, we’ll see the rotation down.
And actually, let me just pull a quick Fibonacci level for you here. So if I come to the bottom and come to the most recent hive here, I mean, your first level of true resistance, probably 20, yeah, 20, and we could possibly get back here to 38.2, which brings it down to about 380.
The other side of that is we’re coming into the end of the year, and we’re going to have people start coming out with their projections of earnings for next year, right? So if earnings start coming down, obviously, you’ll see the multiple of the market pullback as well. So that’s something to keep in mind.
Jumping over to the queues for the tech sector, obviously, we saw the bounce off the 0.618 move from the COVID lows to the COVID highs. 0.618. I love it when it works. Bouncing right here at resistance zone of the 100-day moving average, we do have a gap below the market.
Remember, I mean, the nice thing is that the bond market has kind of stabilized a little bit. It’s starting to – anything can happen. But after the CPI print, had the massive drop in the yield for the tenure. Obviously, that affects the market here as well as pulling mortgage rates down a little bit in the real estate sector. People are starting to think that they can figure it out. Keep an eye on that.
And then here we go on the Russell. Again, down trend line, bouncing right off the down trend line, and the 200-day moving average, consolidating a little bit around the 200-day moving average. So that’s where it’s like this could really go either way. And that’s where it’s just like don’t take a play if you don’t have to, if you’re doing a trade.
Long-term investments, think about them. Have your checklist ready, obviously, but we did fill that gap as well as hit a resistance zone here. If we can’t break through, I would expect a pullback here too about the 180 level, where you have the 100-day and the 20-day moving average is kind of consolidating here about to cross. And that’s like…
Austin Hankwitz: What is that from, like, a percentage perspective? I’m trying to look at these numbers on the side, maybe call it…
Daniel Snyder: From where we are now?
Austin Hankwitz: Yeah.
Daniel Snyder: 3%.
Austin Hankwitz: Got it. Got it. Okay, okay.
Daniel Snyder: This is for the Russell, right? Remember this is small cap.
Austin Hankwitz: Correct. Correct.
Daniel Snyder: So – and that’s the overall look in the market. Obviously, I hope you guys get some insight and value out of that.
Moving on, though, because we have something new we want to try with you all today that are hanging out with us. We have a poll. We’ve got a question.
Austin Hankwitz: Questions? Other questions.
Daniel Snyder: You’re all looking at your screen. We want you to answer this question. Josh, can you go ahead and throw the poll up for everybody? Where do you think the mark is headed by the end of the year?
Austin Hankwitz: Oh, I know my answer to this.
Daniel Snyder: Higher or lower, let us know everybody. Should you play a little game while they’re answering? There we go.
Austin Hankwitz: But where was the Jeopardy Jam, right? It was like the doo, doo, doo doo. I mean, one of those. Yeah. Well, I like the Stock Market Live jam. The Stock Market Live jam is more meaningful in my opinion, right? We got the bottoms.
Daniel Snyder: There we do.
Austin Hankwitz: Yes. I just want to remind everyone…
Daniel Snyder: That’s why we did. Josh, You want to go ahead in that poll, show us the results, what do we got going on? People think that the market’s going higher or lower. We need to see some data here. 67% say higher.
Austin Hankwitz: Wow.
Daniel Snyder: 33% say that they expect the market to go lower by the end of the year. So I’ve got to ask you, Austin. Was that what you would have expected in market rallies. What do we do?
Austin Hankwitz: Oh. I mean, well, okay. So it’s expected. I feel like I could expect people to think that it would go higher, right? We’ve seen a lot of momentum recently. We saw that – we saw the inflation kind of pivot a little bit from a super, super running to, like, oh, everybody now get a little bit lighter. Nothing too crazy.
So I could see how people could have that argument for sure. Earnings are coming in there. They seem fine, right? But I would imagine in just, in my humble opinion, I don’t think that we are. I think we’re headed lower. But again, only time will tell, only time will tell.
Daniel Snyder: I think long-term, we’re heading lower. I think short-term, we’re probably in the perfect seasonal – there’s a lot of little moments, seasonality traders at big institutions trying to salvage their job if they’ve underperformed this year. Like, there’s a lot of different reasons that are stacking up right now that you’re like, okay, I could see another bear market rally, but I think long-term, we’re still heading lower. But it’s just my opinion, not investment advice as you know.
Let’s go ahead and get into two initial thoughts. Shall we? Bear it…
Austin Hankwitz: Let’s do it. Before we do that though, I just want to remind everyone that there is a 100 emoji in the chat. So when you’re listening to this on your podcast and you can’t see the chat, I just want to remind you, there’s the 100 emoji. It’s got 100 with two lines underneath of it. Put that in the podcast review, we’ll know that you’re a real one.
Daniel Snyder: 100.
Austin Hankwitz: I thought you would say that.
Daniel Snyder: That was from my childhood, man. That was from my childhood growing at 100. I grew up and do it…
Austin Hankwitz: All right. So let me kick us off. Let me kick us off, Daniel. So let me get your initial thought on this, Daniel, right? So Target reported their earnings results. And a part of that earnings results, they talked about shrinkage, right? This is shoplifting, and they said that year-to-date, right, so this is through Q3, they experienced $400 million worth of organized shoplifting and they expect it to peak at $600 million during the entire year here of 2022, right? So $600 million worth of merchandise off the books from shoplifters, organized shoplifting.
So one, I want to get your thoughts. Is this a larger problem? I know our retailers experience this at large, you believe, and they’re just not talking about it. And this other thing is, what do you think Target’s (TGT) going to do? Are they going to be able to combat this somehow? Or is this just going to be a write-off every year now for the company?
Daniel Snyder: All right. So part one was, is this a larger problem? Is that right? Larger problem. Yes. And I mean, it’s nothing that’s going to be solved right away anyways. But it is a problem that’s probably going to get worse as we’re seeing the contraction of what’s happening in the economy. You got to keep that in mind.
Specifically for Target, I think it’s just – currently, it’s the nature of the beast, right? They’re going to have to — a lot on their line items or a markdown. They’re just going to have to eat it, right? I mean, because at the same time, it’s like, all these businesses, by the way, I mean, from the top down, typically, when their employees are hired, HR-wise, and stuff, they’re taught, like, if somebody’s running out of the store, don’t chase them.
If you’re working a cash register and somebody comes to hold you up, give him the money, right? It’s all about protecting the employees, safety, and their health. So it’s kind of like, if somebody does it, they do it. They’re just going to have to write it down. You don’t know?
Austin Hankwitz: I agree with that. And I think, Craig, he’s got a good point here until the penalties for theft to get tougher, it will increase. That reminds me, wasn’t there…
Daniel Snyder: You can kind of take it back.
Austin Hankwitz: Okay.
Daniel Snyder: If you get caught for stealing, your hands are cut off. But that’s not what they did in history, right.
Austin Hankwitz: That’s what it used to be. That’s for sure. Yeah. You lie. Your tongue gets cut off. Yeah, yeah. And I know what you’re talking about. It reminds me, wasn’t it in 2020 or something, in 2021 we saw in the state of California where you can steal up to, like, a $1,000 or something and it’s only like a misdemeanor or – so everyone was going to these CVSs and these Walgreens and just taking everything and walking out. It’s crazy, man. It’s absolutely crazy.
And I’m hoping though that that Target is going to be able to figure out this problem. I shop there religiously. I love shopping at Target. It’s wild and not just for the sake of the investors, but for the sake of just humanity. Like, I don’t want people shoplifting, right, just [Cross Talk]
Daniel Snyder: That’s something blockchain is going to fix.
Austin Hankwitz: Okay. Hold on. Hold on. Hold on.
Daniel Snyder: No. Let’s move forward. Come on.
Austin Hankwitz: All right. We’ll speak about blockchain. FTX has collapsed. It’s causing a lot of hedge funds and other exchanges to be caught with their pants down. The question I have for you and I don’t mean this to be insensitive, but it’s where my head goes, right? In the long term, is this collapse of FTX good or bad, right?
So, like, think about, like, regulations. We could think about, like maybe adoption and awareness. Like, think about it from that perspective. I know that there’s a lot of people who lost a lot of money, and I’m really remorseful for that, and I feel terrible 100% and I have very close friends who lost money as well.
But I guess, I don’t know if I’m trying to make light of the situation, but I do want to get your thoughts on as an industry, could this be what needed to happen to move us in the right direction from a regulatory perspective or any other kind of idea that a non-Bitcoiner like yourself has?
Daniel Snyder: So I have an opinion just because I spoke to Omen, right? Because this was a question we asked him yesterday. It needed to happen. Also, it’s just a perfect reminder for everybody to know your investment risks, right? Don’t utilize money – how many times have you heard don’t utilize money in crypto that you can’t afford to lose, right?
That – and this is one of the reasons why? It’s so early. It’s so new. And so when I was talking with Omen yesterday, he was bringing up, like, think about WorldCom early on in the Internet. I brought up the metaphor of Enron. The difference is, like, is Crypto and Blockchain now the new Internet. And did this happen early on, so that people could see where things need to head from here when it comes to do tokens even matter.
What are – why let an exchange hold your coins? Have it in your own wallet? Like, figure out the actual process and then everybody’s going to reference this moment in time, right? Like, the amount of celebrities and the amount of influential people that Sam Bankman-Fried lost all their money from. I mean, it’s just like, this needed to happen, yes. I feel sorry for the people a little bit, honestly, a little bit.
But I think innovation is going to come out of this because now from here on out, every investor is going to double check and triple check and quadruple check because the other thing was like the investment rounds. This guy was raising investment rounds like crazy evaluations. He’s just like, oh, whoa, so and so hedge fund invested.
So why would you? Oh, you want to look at our books? We don’t want your money then. Like, the conversations just probably didn’t make sense and people were just throwing money because other people threw money and they were like, well, cyber global maybe, or Softbank (OTCPK:SFTBY), or the like?
No, do your own due diligence. So yeah.
Austin Hankwitz: I will comment. To that point, I will comment. I think I saw something where Trimorph [ph] in his fund was going – wanting to invest in FTX International, or U.S., whatever. And he said, yeah, we want to, but for us to actually invest, you need a Board of Directors. We want to see A, B, C, X, Y, Z. We don’t see any of that right now.
So like, if you want our money, we want to invest obviously. If you want our money, we need to see those things. And Sam was just like, hiss off, dude, kick rocks, right? I don’t care. I don’t need your money. Everyone else is going to give me money regardless.
Daniel Snyder: And it’s also weird that, like, more and more is coming to light. Like, I haven’t dived all the way through everything that’s happened, but, like, Alameda Research that no one knew about until just the other week. It’s like, oh, wait. The girl that he has over there running, that is like a girlfriend that he got from New York, and her dad is this guy at MIT and used to be in with the Federal Reserve. And it’s like this weird connection of web going on and you’re like, all right, this is shady. Like, nobody’s going to give that guy money again.
Austin Hankwitz: Yeah. No. And we’ve seen this online, and I’ll say he – Sam Bankman-Fried is the, I think I saw the second largest donor to the Democrat Party. He donated $40 million for midterms – or during the midterm elections. And that’s not to say one thing or anything about political stuff, I don’t care.
But I think it’s very interesting that the money that he was making was going to political efforts, right, one side of the aisle or the other. It’s just – it’s wild, man, and it’s really frustrating though because as someone who has been in cryptocurrency for several years, the first thing I do is even yesterday, right, I bought my Chainlink on Coinbase Pro, and then I moved it right to my wallet.
Right off, it’s just like natural. I just think about that. But unfortunately, maybe it’s not taught, maybe it’s not brought awareness of it. And I think for the longer idea and this longer-term thinking of, was this collapse, as we saw with Enron, right, could this be good from a regulation perspective and an awareness perspective? I am hoping that that could be the silver lining to this tragedy.
Daniel Snyder: Duly noted.
Austin Hankwitz: All right. Last one, I want to ask you about and this is actually, I feel really passionate about this, Daniel. So I’d love to get your thoughts.
Elon Musk sent an email last night to his Twitter employees stating there’s going to be long hours of high intense work ahead for them. This immediately makes me think of the tech talent bloat that we saw during COVID and that we’re still sort of seeing, right? We saw an activist investor come in with Google saying you guys got to start figuring out, you hired 30,000 people. What’s going on, right? What’s your perspective on this?
So are tech companies now going to run more and lean? Is Elon going to be the new example of how lean, mean and profitably you can run a tech company? Or is this him just being an [Explicit]?
Daniel Snyder: No, I wouldn’t say that. I mean, the guy owns a business that’s not making money right now. Like, he has to do anything within his power to turn the ship around and it’s, hey, you have an employment contract that you signed starting to work for this company saying, you can work up to 40 hours a week. You better be in the office for 40 hours a week.
Like, if you don’t like it, you can leave. And also he included, you get three months’ severance on the way out. Like, he wants people that are dedicated to help turn this business around and it’s kind of like, do you – I mean, that’s for everybody to make their own decisions on, but like, do you believe in the project? Do you think you can turn around? Are you there for the salary? Everybody has different reasons? ?
So I’m not sure he’s like just being a complete jerk with it. But will other technology companies replicate this model? I don’t think so. I don’t see that happening.
Austin Hankwitz: I wonder though if there’s going to be a day, and I think I saw this on the all-in podcast. But I – so credit to them. But I wonder if there’s going to be a day, where Twitter has some sort of, here are books or we IPO again, whatever some sort of transaction happens where they have to disclose publicly a lot of this information. And investors ears perk up and say, whoa, how is Twitter running at x percent gross profit margins? That’s twice as much as it was before.
Does that mean that if someone comes in and cleans house that Alphabet could do that, that Microsoft could do that, that Apple could do that, or any other tech company for that matter, right? I think it’s just a really interesting thought idea to imagine a life where tech companies are as profitable as they possibly can be versus trying to retain obviously very talented engineers and things that nature through different perks and salaries and bonuses or those are obviously even to the margins.
Daniel Snyder: No. No. It’s a really good point. It’s a very good point. And we’ll see, right? I mean, for Apple (AAPL), it’s I think you just mentioned the salaries and perks and the stock conversations, like, Apple’s AR division that they’re working on is paying crazy salaries and crazy amount of stock compensation right now just to retain that talent, but that’s because they’re working on a project that has the potential to pay off.
So I think what you’re going to see is, like, these tech companies start to maybe cut out those projects and whoever’s associated, hey, either find a new place in the company or we got to let you go or something like that. I’ll see.
All right. I already get into three items with you a real quick, so we can dive on in. I’ve got other – one other observation I want to share with everybody to don’t want to get your thoughts. But first up, Marvel’s Black Panther opened in theaters last week into the second biggest opening for a movie this year, only behind another Marvel movie, which was Doctor Strange, the sequel of it.
So Wakanda Forever brought in a $180 million domestically not including the additional $150 million it brought in internationally. So bullish or bearish on movie theaters and their corresponding stocks?
Austin Hankwitz: Oh, I like this question, right? I think this comes back to what we’re talking about with Disney (DIS) and the fact where are they going to have these AR/VR things? Well, no, like, sure that can supplement the experience, but they’re still going to want to go to those parks, right?
So I think that to that point, there’s going to be – and there still is a lot of people who are diehard fans of these movie — what was it called the catalogs or the franchises, the movie franchises. There were some diehard fans of these movie franchises. And in my humble opinion, the movie franchise, we’re going to see a consolidation in movies, right?
I think when I was growing up, we saw, like this movie came out. And it was just, like, ideas and funny things, but it wasn’t like Disney. It wasn’t, I don’t know, Pixar. It wasn’t this or that. I think in the – probably the next several years, we’ll see a consolidation where a lot of the movies coming out are going to be these big movie franchise names, the – I think you said Wakanda, I haven’t seen any of these movies. It was the Black Panther, and then Doctor Strange, whoever that guy is.
But I think that’s what’s going to take place here. And the people who love it, assuming you do, if you just shake your head at me for not knowing who that is.
Daniel Snyder: I am a movie buff through and through it, you’ve got to think about it, before my career at Seeking Alpha. I was working in LA doing TV and Film like, that is.
Austin Hankwitz: Right. I get it. I get it.
Daniel Snyder: I got to ask though, are you saying the movie consolidation will happen specifically for the movies that are released in theaters or overall?
Austin Hankwitz: I think overall, but I wonder so for the theater stocks specifically, this is bullish or bearish with them. I’d still – I’m kind of neutral. I don’t think that we’re going to see a cool run through and everyone’s running to the movie theaters anymore. Like I think that’s kind of over. I think streaming has done, it has eaten into that. I just – I haven’t gone to a movie since I was in high school, full stop.
Daniel Snyder: What?
Austin Hankwitz: A movie theater. I know, I know, just whatever, and that was, again in 26, so that would have been over 10 years ago. But on top of that, there are people who still love to go to movies and you know the experience. My girlfriend’s one of them. She’d say, hey, let’s go watch a scary movie in the theater. It’s like, I don’t want to do that.
So I think that’s going to be a real steady stream. But what will be interesting to me is what happens when a Disney or Pixar or Marvel, I don’t know, whatever, is able to create their own movie theater franchise, right, where everything is themed Disney. It’s always Disney movies coming out and maybe it’s Disney Snacks or Disney experiences. I think that could be pretty interesting. But generally speaking for movie theaters, I’m kind of just like this emoji.
Daniel Snyder: All right. I mean, look, I’ll take the other side of that, right? So it’s like, I get what you’re saying about consolidation. I think it’ll happen with movie theaters. But I think what streaming is, you’re actually going to get more IP release. You’re going to get more content because it’s going to go back to, like, what you were talking about back in the 90s.
I mean, you got to think about, like, Touchstone Pictures and all these other arms that were underneath the umbrella of the major company. And they were putting out those mid-tier movies at the time where the budgets were maybe $20 million, $40 million, which really wasn’t possible until recently. It had to be a big blockbuster with a budget of $100 million-plus, where I think streaming has kind of changed that game a little bit and you’re seeing it with Netflix (NFLX) and a couple of the other players. But we’ll see.
I want to ask everybody that’s joining right now, like, let me know in the chat box. Please give me some validation. Are you guys still going to movie theaters? Because I personally go to movies. And when I hear Austin say this, like, I don’t know, man. We can’t be friends anymore.
Austin Hankwitz: Oh, come on.
Daniel Snyder: Dude, no Norms, no Vitas, yes, 10 years no, oh my goodness, man. No from a Rich or no Dan.
Austin Hankwitz: I’m seeing more Nos than Yes’ Dan. I think I’m on a very little, okay? No from Josh too.
Daniel Snyder: Josh is at the back, man.
Austin Hankwitz: Yes, Joe. Oh my gosh.
Daniel Snyder: He’s not right now. All right. Moving on, in November, University of Michigan consumer sentiment number came out last Friday, came in at 54.7, it was expected to be 59.6. And for reference back in October, it was 59.9, so it’s seeing a pullback.
Also, the year ahead, inflation expectations released were 5.1%, which is up from 5% previously. Also, the Surveys of Consumer Director, Joanne Hsu said, all components of the index declined from last month. But buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 21% on the basis of high interest rates as well as continued higher prices.
So seeing that huge pullback in the consumer sentiment numbers. I got to ask you, are you bullish or bearish on peak inflation being behind us and seeing how the interest rates are reacting, the Fed moves, and everything that goes into this?
Austin Hankwitz: So my initial thought is I don’t think peak inflation is behind us. And I, unfortunately, for a lot of people including myself I’m a consumer. I think inflation is going to linger longer than we thought.
I think that what is – I don’t think we’re going to see true inflation moving to the downside until things get bad. And I don’t think things have gotten bad yet to be quite honest with you, Daniel. To this idea of interest rates rising, it’s I think we talked about this. I had – I knew someone who was going to put charge on their credit card, and they decided not to do it because of the credit card interest rate went from, like 22% to 36% year-over-year. It’s like why is this happening?
And my dad was going to buy a used car, but then he saw the financing was like 10.5%. He’s like, what the hell is this, right? And so I think what’s – what I think people are becoming to the realization that things are coming – things are getting bad and your demand destruction is becoming to be more apparent. But I don’t think it’s really begun to really hit that velocity, like when you, like, come out of, like, the earth’s gravitational pull and you’re, like, going into space, I don’t think we’ve seen that kind of hit velocity yet with demand destruction.
I think it’s happening soon, right? I think it’s going to be very much more apparent by the beginning of Q2, beginning of Q3 of next year. But true demand destruction that is moving inflation the other way, the way that we want it to be moved. I don’t think that’s happening just yet.
Daniel Snyder: No, that’s a good point. So I was asking and this came across, so I just saw Michael Burry tweeted out recently…
Austin Hankwitz: Oh, my gosh. Yeah.
Daniel Snyder: He was like, you don’t know how short I am, right? Obviously, it’s 13.5 season right now. All the hedge funds with over $100 million are releasing their holdings and the moves they made last quarter, and they don’t report what they’re short on. But for him to tweet, you don’t know how short I am.
I mean, the guy that caused the housing bubble seen where we are right now in the market and the technicals and everything else, you kind of formed this picture going oh, how bad connects you actually get with demand destruction and consumer sentiment? Like, once we see consumer sentiment hit below that 50 number, pretty much meaning, hey, we’re not an expansion anymore, contraction like this is getting really bad.
All cards for soft landing are off the table, right, straight hard landing. How bad is it going to be? How bad are home values going to go down? How many people are going to be on play? Like, it’s just going to – that’s going to be a waterfall cascade effect if that happened. So I had to ask you.
All right, third up, and then we get to – moving on. NVIDIA (NVDA) and Microsoft (MSFT) just announced today a partnership to build a massive cloud AI supercomputer. It’ll be powered by Microsoft Azure infrastructure and running on NVIDIA’s GPUs networking a full stack of AI software to help enterprises train, deploy, and scale AI. Are you bullish or bearish on that?
Austin Hankwitz: Hell of bullish. That’s awesome. That’s news to me. That sounds like a really cool idea. I think NVIDIA is one of the best in the game as is Microsoft, right? And if they could pull together like processing power with the awesome platforms and the ability to the utility with Microsoft Azure, yeah, that’s great. I’m here for it. Good for them.
Daniel Snyder: Sweet. That’s a bullish take right there. All right. That’s bullish or bearish, initial thoughts.
Let’s move on. Okay. So we talk about stock ownership in the filings all the time, and I’m always on Seeking Alpha. Going to that ownership section, looking at the SEC filings, and I got a point – pinpoint one out to you because I want to hear your thoughts because I was going down the rabbit hole with this. And I just want to highlight it for everybody as well. Maybe this is something that interests you.
So we kind of heard of this company before Datadog (DDOG). If you don’t know, now you know. Ticker symbol DDOG. And I was scrolling, so if you don’t know, you can scroll down the symbol page here. You’ve got the SEC filings ownership. And I see that there were two recently filed ownership amendments. So, I click through, oh, here’s a quick overview.
So Datadog, this is kind of what they do. They kind of do, like, overall analytics and checking of your full stack of your software for an operational of the company. And apparently, I mean, the company is apparently doing everything, right? They have massive amounts of – it’s well over 1,000 customers that are paying over $100,000 in the ARR every. I mean, it’s ridiculous.
So anyways, Here’s the forms, the Form-4. And I noticed it was from this guy, Matthew Jacobson. And I was like, oh, this is interesting. Okay, Director. He’s doing all this acquiring of the stock around the $68, $69, $70 area. Of course, you had the form – you had to put in the form and you can kind of see what he was using to buy. He’s got all these different, like, I don’t know if these are funds or what he’s got going on here.
So I was like, hold on a second. Okay. So he did it on November 7th, he bought a lot. November 9th, he bought even more. Same kind of price range. I’m like, who is this guy? Matthew Jacobson. So he runs ICONIQ – he’s a partner at ICONIQ Capital. So I clicked on his LinkedIn. I was like, oh, look at this guy, okay? ICONIQ Capital. Oh, he’s a Board member at Datadog. Oh, he’s a Board member of GitLab. Oh, he’s a lead investor in Series D and E of Snowflake. Oh, he’s like – I’m like, oh, you’ve peaked my interest.
And so I’m kind of wondering your thoughts, like, is this something that somebody should be getting excited about?
Austin Hankwitz: Yes. I mean, we’ve had this conversation before, right? People sell stock for any reason. I know I worked at a publicly traded company. I asked our CIO, why he sold 3 million in stock. He said I want to pay off my house. Like that, like, full stock. I want to go buy a new Audi, right? Sell stock for whatever reason. Not because they’re bearish on the company, but you buy stock for one reason, Daniel. And that’s because you think it’s going to go up and because you’re excited about the company. And what they’re doing as a Board member of Datadog, as a Board member of, I’m sure you said GitLab (GTLB) and as an early investor in Snowflake (SNOW), he is seeing what’s going on with the other companies, the landscapes, momentum perhaps, of what’s going on with the industry around data and analytics. And I – that’s awesome. I think this is the reason to get excited.
Daniel Snyder: And so the other thing I had to point out, so I was like, all right. Well, let’s go look at the chart of Datadog. I like to look at technicals, right? So I come back here. I’m like, oh, this stock has been in a downtrend like the overall market. There’s a gap down here below the market. And then I was like, wait, what is – I start looking at the dates here.
So you can see the dates up here above the chart. And I was looking at the dates, and I was like, holy cow did this guy time his purchases perfectly? So here we are right where my cursor is, that’s November 7th. Drop down a little bit more, two days later, he bought more. And can I – I kid you not. Let’s take it from the top of this little bar right here.
Austin Hankwitz: What is that, earnings?
Daniel Snyder: Huh?
Austin Hankwitz: Is that an earnings jump right there? Is that why it moved up so much?
Daniel Snyder: No. Earnings were announced before the jump.
Austin Hankwitz: Why the heck did it jump? That’s crazy.
Daniel Snyder: No, it jumped. The dude is already up 20% on his purchases. I talk about time in the market.
Austin Hankwitz: That’s wild.
Daniel Snyder: Now I’m going to pull back down. I mean, now we have this gap and everything. But I’m just like, like, I’m wondering for myself, is this the company I want to be in? Like, is this a great buying opportunity right for this company? And maybe we can cover that in a future episode and learn more about the company and everything that it does and all of its customers and everything.
Actually, let us know in the chat right now. Would you be interested if we cover Datadog? Because if you are, we’ll do it for you. All right. So I just had to bring that up little observation moment in the market. Now…
Austin Hankwitz: Yeah. That was great. That was great. I love it.
Daniel Snyder: Let’s move on. I think we need to go into the analysis time. And we like…
Austin Hankwitz: I’d love jumping to analysis time. Before we jump into analysis…
Daniel Snyder: Before we do, I want to…
Austin Hankwitz: I got to let him know. I just want everyone to tune in right now.
Daniel Snyder: Are we going to see wavelength right now?
Austin Hankwitz: We are, man. With the same wavelength and same hair product, right? That’s best bet if I ever heard of it. As you guys know, I create personal finance and investing content on TikTok. I share my ideas on Twitter. I share my ideas with you here on Seeking Alpha all the time. We do these deep dive analytical research.
We’re looking at different types of fundamental analysis. We’re looking at different types of secular growth trends, all the fun things to help navigate investment decisions. And so I have launched a Seeking Alpha Marketplace, where my team and I share macroeconomic deep dives, stock analysis for hosting live streams every Monday night, and we provide other commentary to help our community navigate this weird, uncertain times that we’re experiencing right now in the stock market and in the economy, right?
So there’s a link in the show notes. I’ll let Daniel kind of throw it in here in the in the chat. Thank you so much. Josh, I see that there. It’s called Cash Flow Freaks because we’re freaky, excited about cash flow.
We’re talking about companies who are paying those dividends, who are breaking up – breaking in the cash flow, free cash flow specifically because we all know free cash flow per share is a wonderful driver of stock price. And if you want to learn more, there’s the website to go check that out. And I appreciate the interest. Thanks, everyone, for the little shameless plug there.
Daniel Snyder: Hey, no kidding. No. Look, guys, I mean, if you’ve never read Austin’s content, I mean, it is literally superior to probably anything. You’ll read anywhere. Like, I kid you not. Like, I’m not just saying that. Like, I read a ton of the different services we have on Seeking Alpha with the Marketplace Services and, like, even the contributor articles. I’m reading stuff all the time. And it’s not only does Austin give you his viewpoint, but he backs it up with data and the charts and everything else. And so it’s definitely worth a read. Are you doing a trial?
Austin Hankwitz: I am. I forgot to mention that. Yeah. So you get two weeks of trial. You have no money out of your pocket and nothing to worry about there. And you try it out for two weeks. If you like it, you like it. If you don’t, no hard feelings. We’re reworking the model portfolio, I’m still kind of working the kinks out when it comes to working the chat and understanding how to communicate with everyone in an effective manner. But regardless, I’m here. We’re all hanging out, and I’d love you all to join us.
Daniel Snyder: I mean, dude, that’s another sign point. I didn’t even think about that. I mean, I don’t know they get to talk to you 24/7. Here, they only get to talk to you for an hour, once a week, get to you for 24/7, I mean, what else could you want?
All right. Cool. So go check it out, Cash Flow Freaks. Cash Flow Freaks on Seeking Alpha Marketplace. And now let’s dive in, two stocks.
Austin Hankwitz: Seven. That’s two of them, Daniel.
Daniel Snyder: We’re not doing guess a stock because there’s two, they’re competitors. They both are in the sports and outdoor space. They are retailers. And those two companies today are DICK’S Sporting Goods (DKS) and Academy Outdoors Sports Incorporated (ASO). Did I say that right?
Austin Hankwitz: I think it’s Academy Sports and Outdoors Incorporated.
Daniel Snyder: Academy Sports and Outdoors Incorporated. That’s right. All right. So let’s go ahead. You want to give them a quick overview of these two companies?
Austin Hankwitz: Yes. So to compare these two companies, we first need to understand what they do and how they make their money. So both of these companies are these retail first sellers of sporting goods, I think fitness equipment, golf equipment, hunting and fishing gear, apparel as well as footwear. I think a good way to compare the company is just like off the rip is by thinking of their size, right?
So DICK’S Sporting Goods is operating 860 retail locations across the country. And you compare that to the 261 retail locations, Academy is operating themselves, which means that DICK’S footprint is roughly three times larger than Academy’s. But the question is, are they making three times as much money?
So last quarter, DICK’S reported total revenue of $3.1 billion You compare this to Academy’s revenue of $1.7 billion during the same period of time, which means despite having three times the footprint, DICK’S isn’t even making twice the revenue. So why is that?
Before we dive into that, we have a lot to share, but let’s talk more specifically about the recent quarterly earnings, give you the kind of lay the table here. So DICK’S had revenue of $3.1 billion in Q3 compared that to – or during the last quarter rather, you compare that to $3.3 billion during the same time last year, so things kind of contracted. Operating income of $460 million compared to $664 million last year. Lots of contraction. Profits of $319 million compared to $496 million last year, also saw contraction.
What about Academy Sports? So Academy Sports saw revenue of $1.7 billion compared to $1.8 billion last year, about flat. Operating income of $257 million compared to $255 million last year, up slightly, and then profits of a $189 million compared to a $190 million light last year, also flat.
So interestingly enough, DICK’S doesn’t seem to be trending in their direction financially when compared to Academy Sports. So who at first glance instead seems to be maintaining and growing their margins and moving in the right direction. So the real question, right, what’s going on here? Which company is exciting? What’s up with this footprint? Who’s making them more money? Like, what’s – what do we get into?
So let’s actually jump in with a chart. Josh, do you mind snagging? Assuming you guys snag the chart from the – okay, cool, cool, cool. Love it. So these charts are going to show you some information right back. Bank of America shared a report with us on November 14th that detailed the spending activity at these types of retailers, right, so just sporting good retailers, not specifically DICK’S or Academy, just sporting goods.
During the month of October and according to the report, spending at sporting goods was down 8% in October, which was worse than the 7.3% deceleration we saw in September. Remember, this is year-over-year deceleration. However, spending is still up 38.5% compared to pre-pandemic levels. And this is up even further against the 35% growth in September that we saw versus pre-pandemic levels. And now you’re saying, Austin, where is the spending data coming from? It’s coming from Bank of America credit cards and debit cards, right? So this is real spending data.
The next chart is a really cool comparison. I think, yeah, I’ll go forward. Let’s go to the next slide. Maybe not. Okay. Maybe y’all didn’t snag that one. That’s okay. So long story short, the chart I’m kind of alluding to here is a – it just shows the correlation between the spending data and the comparable sales at these stores, right? And long story short, it’s very close. The comparable sales and the spending data go hand in hand. It’s nearly a one-to-one correlation.
Daniel Snyder: Hey, Josh, you should have that chart by the way, if you restart the slide.
Austin Hankwitz: Oh, perfect.
Daniel Snyder: Slide 2.
Austin Hankwitz: But anyway, so it just shows data is very correlated, which means that, theoretically speaking, if Bank of America’s report is correct on these sporting goods spending, then maybe DICK’S Sporting Goods and Academy might see some comparable year-over-year contraction. There we go. Yeah, so that’s Academy Sports. We can see how closely it is there to the Bank of America spending data and their comps. And then maybe the next chart is also going to show you DICK’S Sporting Goods. I assume go to the next slide.
Daniel Snyder: It’s not up yet. Keep going.
Austin Hankwitz: It’s all good. So I share this data in the graphs on screen just to preface this analysis. There’s clear correlation. And with that being said, if the Bank of America spending data is pointing toward contraction in spending, that might be foreshadowing what could be around the corner for these companies.
So let’s kick off this analysis specifically with DICK’S, right? So what’s the deal here? Why their stock price see such momentum going into 2020 and 2021? And does the recent rally from the low in June actually have legs?
So starting with the obvious, sell-off catalyzed by the pandemic. We had this March of 2020 sell-off DICK’S actually reported earnings, like, right at the bottom there, which is pretty cool. And so that was a cool little bounce for them to get the recovery started. The earnings they shared were very positive, right? Comparable sales were up 4% for the year of 2019, 5% for the quarter, gross margins were up 30 basis points, profits were up 14%.
And the best part was DICK’S spent all of 2019 repurchasing their own stock to the tune of 11.1 million shares. That’s like 15% of outstanding shares at the time. It was wild. The company then smashed their Q2 2020 earnings expectations, officially giving their stock momentum it needed to begin moving in the right direction. Comparable sales were up 20%. Earnings per share came in at $3.12 versus the $1.20 expected. That’s nearly 20 – I’m sorry, $2 of earnings per share higher than the expectations.
Daniel Snyder: The opening yields at all.
Austin Hankwitz: The opening, right? People were jumping on this, and this was a lot of e-commerce fueled, right? A lot of people were saying, let me go buy those baseball bats and the soccer ball, so I can get outside. So now we fast forward 12 months and we saw continued execution by their management team. 2021 turned out to be an awesome year for the company with revenue surging 28% and profits skyrocketing a 157%. 2022 was also shaping up to be a solid year, but uncertainty and doubt was on the horizon.
The company definitely benefited from the, let’s all go outside again spending we saw in the post-COVID world. But how will this company shape up as trends begin to normalize again in 2023? So let’s walk through a few reasons why you might be excited as an investor to old DICK’S Sporting Goods stock.
The first reason is DICK’S has done a wonderful job expanding the gross profit margins post-pandemic from 28% to 37%. This is being continually boosted by their private label vertical brand assortment, the private T-shirts and the private shoes and soccer balls, right? These are private label in-house brands and there’s 14 of them. DICK’S is crushing it. These are higher-margin products, right?
The second reason is improved digital capabilities, allowing the company to connect more effectively with a wider range of customers. The next is the company’s exit from the hunting category. Two years ago, this was sort of controversial, but is still playing dividends to their company’s bottom line because they now use this shelf space to sell higher-margin products, specifically outdoor cooking and pickleball of all things.
DICK’S also launched – this is the last reason, they launched 30 stores called GOING, GOING, GONE! These are markdown stores. These are places that have clearance sales, allowing them a physical location specifically created to help with clearance inventory. This gives their flagship stores, right, now more room to sell full-priced items, boosting those margins even higher. So those are a couple of reasons to be excited.
And a reason, I guess, to be on the sidelines comes back to what we just saw with the spending data with Bank of America. We might get into a couple of more reasons here later, but I’d want to move on and definitely introduce Academy Sports to you. I’ll make sure we’re on the same page with that.
So Academy Sports actually IPOed in 2020. They’re a relatively new company. And they’re IPOed for only $13, and now they’re trading at nearly 50, despite all the volatility we’ve seen this year. So as I shared before, the company’s footprint is much smaller than DICK’S, but despite the smaller footprint, they’re moving inventory, right? Generating $1.7 billion in revenue during Q3. And to put that in perspective, that’s $6.5 million in revenue per store, per quarter, right? $25 million a year per store.
You compare that to the only $3.6 million with DICK’S, right, half of that. Nothing, right? They’re crushing it. So similarly DICK’S 2022 was a strong year for the company. And despite reporting comparable sales declining 6% against tough 2021 comps, profits beat expectations. Their gross profit margins expanded by roughly 1% because of their better and best categories. They were really leading into the different pricing here.
Probably the most exciting news I’ve read about Academy Sports is their intention to increase the footprint by 30% over the next five years. This would add an additional $2 billion in annual revenue to their income statement, potentially translating into some intense free cash flow per share growth.
So why would an investor be excited about Academy over DICK’S? Well, Academy has done a wonderful job positioning themselves as the local sporting goods hub. That’s – the keyword here is local. We’ll get into why that’s so important, but their product offerings are very region-specific, giving them an advantage over the cookie cutter products you might see at DICK’S Sporting Goods or other sporting goods stores, right? Very local and hyper personalized to their location.
Second is, their e-commerce business has ample room to grow as it only represented 10% of total sales last quarter.
Third is, there is absolutely potential for the company to continue expanding that footprint, right? We talked about that 30% growth. We love that. That’s going to help with sell-through rates per square foot. They’re crushing that. And again same reasons to be on the sidelines as we saw with Bank of America spending patterns, things of that nature. I know I just talked a lot. That was a lot of analysis, Daniel. I haven’t…
Daniel Snyder: Let me – yeah, let me sum it up, though. Because there’s, like, between these two companies, because a lot of the stuff you’re talking about is also what I was going to mention as well is, like, this boils down to how many stores do you have. What’s your inventory levels? What’s your debt load on the company, which I’ll point out here in a second as well?
And I mean, like you mentioned, the outdoor spending is in a – is kind of peaked if you want to say it that way. We experienced the peak. They’re going through the pullback now. Obviously, schools in session, people have already bought their kids all their gear sports kind of the footprint. And I’m glad you brought up the DICK’S Sporting Goods stores because let me go to my research right here.
They have 861 stores in operation in 47 states. With comparable store sales up 25% year-over-year, 70% of DICK’S Sporting Goods e-commerce is fulfilled by their stores pays to have a footprint. And then 110 of those are specialty stores like you’re talking about with the GOING, GOING, GONE!, so they’re like outdoor kind of stores that is. You can go to DICK’S Sporting Goods stores now, put on shoes and go outside and run-in the track, which is actually inside the store, but it’s…
Austin Hankwitz: I like that. I think that’s pretty cool.
Daniel Snyder: They have that. They have rock climbing walls that you can try rock climbing shoes there. They have golf simulating…
Austin Hankwitz: Having cages, golf simulators, soccer…
Daniel Snyder: The thing I look about DICK’S is they’re one well-established. They connect with the athletes early on through their charity program. They get kids to know the store and brand and everything else like that. So that’s smart move. They’re tied to a lot of professional athletes. They sell a lot of the higher-end products and their partnerships run super deep, right? Didn’t even talk about, like, the Nike (NKE)…
Austin Hankwitz: The Nike partnership.
Daniel Snyder: Yeah, it’s huge. right, where you can buy at either store and you earn for the membership. Actually, I want to point out, too, Alex said, here in the chat, DICK tends to occupy higher dollar malls and Academy is in lower-tier malls in his experience. Thanks for sharing because I mean that’s part of the, I think, Academy has the opportunity here. I think it’s the way I would say it.
Is Academy like you’re mentioning, they want to grow their front footprint. From what I just saw in the most recent earning calls, their CFO, Michael Mullican said, with they already announced plans to open 100 new stores within five years. That’s huge for them. And also if you go and look at the balance sheet, they have drastically, drastically wiped out their debt. I mean, they just still have a little bit of debt. I mean, they took a $1 billion of debt off of the balance sheet just last year. So they’re executing really well.
Before we continue, I want to go ahead and go over to the charts, make sure people see the technical levels of what we’re talking about on these two stocks. So first up is DICK’S Sporting Goods here. Obviously, I’ve got a couple of things already pointed out here. So I drew the Fibonacci levels earlier. Of course, we saw the bounce here recently at the 0.618. That was back in May. And then we’ve seen this consolidation, which is what – this isn’t a gap, right? This is consolidation.
So this is something that I’m watching. Obviously, there’s a gap down right now And then what’s this white dotted line? Well, that’s just a support resistance line. And if you look at it, obviously, typically, when price moves through resistance, it later on becomes support. And that’s what you saw time and time again here.
And when it breaks through the support, it usually turns into resistance. But here, I mean, just massive rally consolidation something to keep in mind for, like, whenever a stock price consolidates, usually, once it breaks that consolidation and whichever way it moves, it’s going to move pretty significantly. And we’re seeing a break now down here to the downside. So that’s kind of something that’s interesting to me right now.
I think the thing that’s important to point out about DICK’S Sporting Goods specifically is that they are pretty levered up right now. They have quite a bit of debt on their balance sheet. And I think it’s $4.43 billion in debt. Now it’s mostly long-term debt, keep that in mind. but you’re still paying interest on it. Their interest expenses are increasing and they have $1.9 billion in cash and equivalents on the balance sheet.
So they’re at $4.82 of free cash flow per share. Academy Sports though is at $5 of free cash flow per share. So they got pretty even there. They both have about the same amount of outstanding float on the market right now. So that’s just DICK’S. And then let’s go over to Academy, see their stock.
I mean, obviously, this one, as you mentioned, they just IPOed here down at $12, not too long ago. So [Cross Talk]
Austin Hankwitz: The stock just goes up. It’s crazy . It just – I heard a lot of Academy Sports’ advertisements on podcasts, and it’s crazy to see just like and that’s how I really came to know in the company during the pandemic. I just it’s wild to see how this company has favored so well despite all the volatility.
Daniel Snyder: Yeah. Alex is asking here. So, well, let me just read this off for everybody, so that they understand for anybody listening in the podcast, says middle class and upper middle class families probably buy more gear. So DICK’S occupying higher-end malls probably pays off at least with foot traffic.
If inflation continues, the question is how much will these upper middle class families cut back? My experience is the last thing they’ll cut back on is stuff for the kids. Alex, I think that’s within reason. This is just my opinion. But I think it’s within reason of what they’re going to cut back on.
I mean, I’m not a parent myself. But if I can imagine having my nephews through my sister, parents want to get kids out of the house. They want them to go play. They want them to be in sports. You learn the team aspect and everything else, but also it’s like you just get their energy out.
So I think there’s still going to be a little bit of spending within the sports arena. But it’s just like, would you go then buy a DICK’S, or would you go to a place like Academy instead? And I think you’re going to see there’s obviously price fluctuations. As you mentioned, Austin as well, they both have private labels. And Academy’s private labels are doing pretty dang well right now, as well as DICK.
So it’s just something to keep in size, like, so private label at Academy is stuff like Freeleaf, Right of Way, Magellan Pro, and they point that out in the earnings call time and time again about how those private labels are doing. I mean, they talk on their partnerships, right? They – both companies have partnerships with companies like YETI, right? And YETI, of course, you can buy either way, price say the same, MSRP stuff. But, yeah, it’s pretty interesting.
The thing I want to point out about Academy for all the people that are in the dividends, Academy just started paying a dividend as well this year. Granted it’s like $0.07. The yield is like 0.60%. Obviously, it’s a growth company right now. Their whole focus right now is let’s just grow, let’s grow, let’s grow, let’s take market share. There’s obviously players out there that we can disrupt with our products, our private label, we can become the next big player in this space.
DICK’S Sporting Goods on the other hand has been around forever and they have all their locations. And now what they need to do is really manage that debt with the inventory levels. Because from what I understand, their inventory levels are pretty high right now. And as we just heard, you brought up Target earnings earlier this morning is Target is saying that they’re expecting a decreased holiday shopping season.
And if that affects DICK’S Sporting Goods as well, then you’re going to start seeing sale prices come through. They’re going to have to move that inventory out and get ready for next year or the next season. So I think that’s something to keep in mind as well.
I think I want to mention as well, they both have upcoming earnings announcements. Academy’s will be on – is estimated to be on December 8th. They’re expecting an earnings per share at a $1.61 and revenue of $1.55 billion, and DICK’S Sporting Goods earnings will be on November 22nd. They’re expecting earnings per share of $2.24, with revenue of $2.7 billion. So we’ll get some updates here shortly on both of these companies.
But for me personally and Austin, I’m sure you might feel the way. I – if I was to buy one of these two right now, 100% I would go into Academy. What about you?
Austin Hankwitz: I’m so glad. I was really worried you’re going to say DICK’S. I was really worried you’re hyping them up there for a little bit. Don’t get me wrong. DICK’S Sporting Goods…
Daniel Snyder: I’ve given both sides [indiscernible]. We got to talk to both sides.
Austin Hankwitz: Yeah. No. I was worried – I’m on Academy team. I’m team Academy. But I was looking at the DICK’S Sporting Goods during the pandemic. What really got me excited about them were these, like, simulation things. We’re talking about, like, the golf simulations and the soccer and the bad engages and, like, all these really cool things to get kids say, oh, I’m going to buy that. Let me have that. That’s so cool. And they’ve done a really good job to Alex’s point here in the chat moving up is kind of this value chain, right?
I think DICK’S Sporting Goods went from – it’s just a Sporting Goods store to now it’s in the high-end malls. Now they got the rock climbing. They got the people in the uniforms. Like, it’s pretty cool. But in my humble opinion and I’m not saying future of DICK’S is grand [ph], I’m not saying that at all, but I could see much more excitement, much more growth, much more earnings, compound earnings potential from Academy Sports.
Daniel Snyder: I agree. Josh, let’s go ahead and go through the slides real quick. Make sure everybody knows where the ratings summary are for these stocks and the Factor Grades.
So first up, let’s do Academy Sports and Outdoors. So, Seeking Alpha authors currently have a buy rating. Wall Street analysts are a strong buy on the stock in the quant rating is actually a strong buy on the stock as well.
Let’s go to the next slide. Check out the Factor Grades and you’re looking at evaluation with a C+ grade, a growth with A-, profitability A-, momentum A, revisions A+. I mean, just breaking this down a real quick. So it looks like it’s fairly valued right now if you’re looking at the C+ grade, growth is stellar beyond belief, profitability is increasing in stellar beyond belief, momentum to the upside that’s just tracking the moving averages and stock price movement obviously to the upside, and then revisions are just the earnings per share revisions that we’re seeing across Wall Street A+, means that the majority of them are revising upwards on the revenue and EPS guidance.
Let’s go to the next slide. This was just something I pulled earlier. I completely forgot about. This is from most recent earnings deck. And I was just going to point out that…
Austin Hankwitz: Is that an action shot at you, Daniel, that you’re fishing a little bit ahead on?
Daniel Snyder: No, no, no, I’m actually – I’m not in the fishing. That’s not me. I can’t do that. I mean, I’m a golf guy, now you’re talking. But I was just always going to point out at the bottom line. As of July 30, 2022, Academy has opened two new stores this year and the company plans to open at least nine new stores in 2022. So they’ve got a few more stores opening this year. Of course, just want to remind you, 100 stores within five years, pretty aggressive, but then I’m sure they can probably pull it off.
All right. Let’s go ahead and look at DICK’S, next slide from you, Josh. So Seeking Alpha authors have a hold rating on DICK’S Sporting Goods right now. Wall Street, still has a buy on it, but the quant system does have a hold on the stock. And if we go to the Factor Grades and check those out, the valuation of DICK’S Sporting Goods right now is a C-, which seems fair valued, but its growth is a little worrisome here, so there’s something to keep in mind. Profitability – sorry, growth is a D-, profitability is an A-, momentum is an A-, and revisions are an A-. So I went ahead and opened up the growth.
Go to the next slide, please, Josh. And looking at the growth here, there’s a couple of things that – I mean, this is just a few of them, but the lever free cash flow growth is a D- grade, the operating cash flow growth is a D, and the CapEx growth is a D+. I mean, it’s just – they’re just a little over levered, right? They got to tweak a few knobs. They can definitely do it. They get the higher margins off of the brand name products. They make a good amount of money. They’ll be fine. I will say that. I think that they’re going to be completely fine.
Lastly, let’s look at the dividend grades real quick for DICK’S Sporting Goods and it’s a little worrisome. But I think overall, the amount of money that they’re actually paying out in dividends versus spending money on paying down their debt and everything else, I think it’s going to be okay for now. I mean, obviously, a low payout ratio. They have levers they can pull. They move product. The big thing is just where we go from here.
Management just has a little bit of work to do on this. But I personally just my opinion, I wouldn’t be too worried about this one. If their dividends being consistent, they’ve grown it for seven year, or they paid it for seven years, they’ve grown it ever three years, I think. They did special dividend. Looks pretty solid to me.
So let’s go ahead and chart off of that. Please, Josh. And got to ask the people since you’re here listening to us. Do you have a thought if you were to buy between these two companies today, would you choose DICK’S Sporting Goods or Academy Sports Outdoors. Let us know right now in the chat. Alex has been tuning in.
Austin Hankwitz: Alex is on it. Alex knows what’s going on.
Daniel Snyder: There we go. So let’s see. ASO from norm. Alex, I got to ask you. Alex, would you be more into buying DICK’S stock or ASO?
Austin Hankwitz: Alex is the girl.
Daniel Snyder: Girl. I apologize.
Austin Hankwitz: I’m so sorry.
Daniel Snyder: Apologize, Alex.
Austin Hankwitz: Well, Alex, I mean – yeah.
Daniel Snyder: All right. So I guess we’re going with ASO. Anybody for DICK’S Sporting Goods? George is also ASO. Okay. Well, guys, we hope you learned something today. Thanks for hanging out with us this hour. Obviously, let us know if you have any stock recommendations that you want us to look at, you can email that over at stockmarketlive@seekingalpha.com.
Again, you can find Austin at Cash Flow Freaks on Seeking Alpha Marketplace. You can find me on LinkedIn. You can find him on Twitter and TikTok and LinkedIn as well. And we really just appreciate you guys. We hope you have a great rest of the week.
Remember, Seeking Alpha Black Friday sales going on right now, 50% off premium, You can also check out Alpha Picks and everything else. Austin, anything you want to say before we get out of here?
Austin Hankwitz: I just want to shout out Christian, NVIDIA for hyping us up, Norm as well. George, Alex. Alex, thank you so much for being so active in the chat. Don’t forget to leave those podcast reviews. Drop the 100 emojis, so we know you’re a real one and we’ll see you next week.
Daniel Snyder: All right, Josh, let’s get on out of here. Everybody, have a great rest of the day.
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