6/27/24 - $wba - Textbook ex. of why avoid leveraged stonks6/27/24 :: VROCKSTAR :: NASDAQ:WBA
Textbook ex. of why avoid leveraged stonks
Not dunking on the stock or holders here. and not writing this for the record of benefit of myself (like all the other posts).
anything today that's got extreme leverage w/ sticky high interest rates is probably going to be in the second or third tier of what gets bot when liquidity moves on this tape.
in this example 13 bn of equity (as of y day) and 35 bn+ of net debt is 50 bn in enterprise value. so even with the stock down 20% and will invariably chop around (probably tends lower)... it's not really a bargain unfortunately. so you take 20% off of 13 bn and let's round up say 3 bn ... you're at 10 bn of equity and still 35 bn of net debt and back to 45 bn of enterprise value (10+35). 10% off.
i have loved the names where the opposite mathematical paradigm occurs. NASDAQ:BLDE has been one example i've traded close to 10 mm market cap in the last 12 months (simply bc they have so much net cash). NYSE:YOU is another one - though my thesis is changing to be less bullish on the long term - and will need to update thinking here after *finally* signing up and test driving the service - but more on this in another note.
just be careful w/ the highly leveraged stuff unless 1) cash flow is not lumpy (it is in this case), 2) the consumer is probably not front and center of the story (it is again here - tough macro factor), 3) results haven't been a problem and the stock isn't broken (again strike three).
the best bet when you get caught bag holding stuff like this is typically just find a place to make peace and get rid of it. go to cash or go to SPX or QQQ for some time. it's also hard to do just that on a down 20% day at the open. maybe we get a retrace sure. but again.
this is expensive and 20% doesn't tell the whole story.
hope this helps someone avoid the mistake in another co at some pt in the future.
V
