For the last few weeks, I have really been digging into the deeper financials of stocks. It all started when an acquaintance of mine brought along a boyfriend to the bar. He was a wall street guy, and he really blew my mind when it came to how much he knew about some of his stock holdings. And even more impressive – he was not even a trader! I think he worked in debt restructuring, but that’s another story. Anyway, he turned me on this site SumZero, and I think anyone who invests in stocks needs to know about it.
Basically, SumZero is a website for investing professional to share ideas and network. Sort of like a linked in/facebook kind of situation, but for guys whose bank accounts end with many more 0′s.
If you’re a pro (and if you’re reading this I’m betting your not), the site boasts
Nearly every major hedge fund and mutual fund is represented in SumZero’s userbase. SumZero members have access to a database of thousands of actionable investment ideas written exclusively by their peers at other elite hedge funds/mutual funds.
But you have to apply for membership, and probably answer some sort of John Paulson trivia question. But fear not, my bottom caste personal investors. SumZero also offers one in-depth, insightful, and professionally written article per week, for FREE!!! That’s right, all you have to do is sign up, put in an email, and each week an actionable investment idea will be delivered right to your electronic mailbox.
The last one I received was written by Julia Bykhovskaia, a CFA at Concordia Advisors. The article was on the stock Zipcar (ZIP) and was actually about entering a short position. But check out the detail in her analysis
ZIP currently trades at ~150x TEV/2011 EBITDA, while comparable companies trade at ~13x TEV/2011 EBITDA. It can be argued that ZIP deserves a higher multiple due to the higher expected growth rate, however 150x is excessive. Even if one believes ZIP should be valued at 20x multiple (still unwarranted), the fair value of the stock would be $4.5 per share. To justify current valuation assuming 20x multiple the Company will have to generate $54mm in EBITDA next year. Assuming 10% EBITDA margins (generous; 2011 is estimated to be 3%), Revenues will have to be $540mm. This kind of financial performance is many many years away at the very best. ZIP is projecting ~$237.5mm in Revenues and ~$7mm in EBITDA in 2011.
That’s some heavy stuff!
But this is the type of knowledge and analysis we are up against when we buy stocks. There are people out there, like Julia, who are combing over financial statements 10 hours a day, 5 days a week, all so that they can beat you to the next trade.
And while my investing philosophy does not involve beating anyone to the next trade, if I plan on being in the market, I should at least know what my competitors are up to. Maybe I’ll take a lesson from them and step up my game.