| | | | "[Death] is My Business… and Business is Good!"
Author: Corey Snyder, Publisher
"My favorite funeral home company, Service Corporation International, had its first public offering in 1969. Not a single analyst paid the slightest heed for the next ten years! . . . Shearson was the first major brokerage firm to show an interest, and that was in 1982. By then the stock was a fivebagger."
- Peter Lynch, One Up On Wall Street (1989)
Originally, the business mentioned in the title was "killing." That was the title of a debut studio album led by original Metallica member Dave Mustaine... but with a different band.
If you're not familiar, Mustaine was kicked out of Metallica prior to the release of the first album, sending him into the pit of despair.
Not many thought much of him after that and he even ended up moving in with his mom for some time...
...Until he turned things around.
After getting it together, Mustaine went on to start Megadeth, arguably one of the most widely known thrash metal bands in history.
Am I telling you this because I'm a fan of Megadeth? Not at all. In fact, I never have been...
I mention this because, for one, I liked the title. And you'll see why in a moment...
But secondly, like many famous musicians, there are companies once lauded for their potential growth that end up hitting rock bottom, well after everyone has taken them off their radar…
However, when things begin shaping up, they can become incredible opportunities...
I believe one of those opportunities exists today.
Back From the Dead?
StoneMor (STON) is a funeral services business that, believe it or not, traded as high as $33.20.
It wasn't that long ago either... 2015.
But the years haven't been too kind to the share price, most of which - if not all - could be laid at the feet of the company.
Friday's closing print? $2.63.
And that's up 275% from the September low of $0.70…
So, what happened?
StoneMor was once a dividend-paying stock, but in October of 2016, that payout was cut in half from $0.66 to $0.33 before they clipped the distribution altogether… I'd have sold too.
Years ago (2011 to be exact), StoneMor's credit rating was downgraded due to negative cash flow, particularly because of its highly leveraged situation and the lack of ROE (return on equity).
I can still recall watching an analyst break down the bear case for the company… No punches were held.
And this was at a time when the company was the industry's third largest in market share although it appeared as if StoneMor was on a path to self-destruction...
The question to ask now, of course, is what's changed?
Just three years ago, StoneMor restructured from a limited partnership to a corporation for tax-related purposes and today, it's the "second largest operator of cemeteries and funeral homes," according to the company's acquisition partner Harvey & Company LLC.
But the key word in that sentence is acquisition.
You see, not all acquisitions are to be treated as good things. The reason being is that many companies will become "serial acquirers" and lose their soul for diversification - or to quote Peter Lynch again, "diworsification."
However, StoneMor has stayed in its lane, buying up more of the fractured funeral service industry and quickly divesting the parts that eat away at capital…
Still, I can understand the sentiment behind not wanting to take a position with a funeral services company...
It feels a bit strange.
Imagine talking to folks at a dinner about investment ideas and you tell your audience that you're deep (six foot?) in a cemetery stock…
In the words of Lloyd Christmas, "Well, this party sure died..."
But if we're looking at pure numbers and the prospects for future returns, that's something entirely different... and what truly matters.
Now, when it comes to longer term investments, sales are undoubtedly important.
This is an area that hurt StoneMor in the past and will also be the company's sticking point going forward. But the latest earnings report shows promise with its growing revenue.
But it shouldn't be tough to beat 2020 numbers given the pandemic, right?
Well, the figures revealed that StoneMor's sales are at all-time highs and well above those achieved in 2019 with increases in both pre-need and at-need cemetery sales - two incredibly important aspects of the business...
Paying for our own funeral ahead of time isn't something we think about all too often, but funeral service companies will gladly accept your card. It's vital to their revenue stream.
What has many investors looking at the company again is the year over year EBITDA. After adjusting for divestments and acquisitions, StoneMor reported 113% growth for Q2 2021… They're also passing a number of prior guidance figures.
This all sounds too good to be true... because it is.
Let's get down to something that's also important: Debt.
And for StoneMor, there's still plenty...
Shortly after the company reached a 52-week high of $5.37 in March of this year, management executed a private offering of senior secured notes… $400 million worth, in fact.
Cash was StoneMor's Achilles' heel before, and while restructuring may have helped, investors will still defer to the balance sheet…
The problem is that it doesn't always tell us the whole story.
StoneMor recently refinanced all outstanding debts using the funds from the private offering, meaning the current book still reflects old payments despite providing more available cash.
And a business can do plenty when it frees up $30 million…
Now, this isn't so much of a buy recommendation as it is a call to dig into the "story" behind a stock's price action.
On a daily basis we're introduced to "hot stocks" and other prospective investment ideas (the irony's not lost on me), but it's not too often that we come across the process for finding them.
And even once we do, the company's story is rarely read.
Frankly, the only reason StoneMor came across my screen again was because of my screening for possible reversals...
The conventional wisdom, after all, says to buy low and sell high, so my natural proclivity is to find ugly charts with a decent story...
And on a 10-year lookback, the potential moving forward takes the cake… or coffin.
Keep moving,
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| | | | (Disclosure: I have no position in STON.) |
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| | | | | Trading with the trend is the way to consistent profits. But what do you do when liquidity dries up? When volatility slows down?
This week, Options Coach Chris Hood shows you his strategy - in detail - for how to find trades that will keep your account growing.
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| | | FINAL PRINTS: The Major Indices Wrap-Up |
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| Index
S&P 500
Dow Jones
NASDAQ
Russell 2000
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| Weekly +/-
+31.48
+306.87
-12.86
-24.65 |
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| % Change
+0.71%
+0.87%
-0.09%
-1.10% |
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| Close
4,468.00
35,515.38
14,822.90
2,223.11
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| % YTD
+18.95%
+16.04%
+15.01%
+12.57%
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| | | MARKET WHISPERS: The Weekend Scoop
- Cruisin' for a Bruisin' - On Friday, two of the largest automakers entered into a semantic spat over the word "cruise" when Ford Motor Co. (F) announced that it planned on making sure the U.S. Patent Office took back General Motors' (GM) recent trademarks. The trademarks in dispute are the words "Cruise" and "Super Cruise" which led to General Motors suing Ford a little over two weeks ago when the company used the term "Blue Cruise" to describe its hands-free driving system. Little do they know, Stellantis NV (STLA) is plotting to trademark the words "vehicle" and "drive".
- Brown Truck, Meet Yellow Jet - With all the talk over electric work trucks and drones, shipping company DHL Express (DPSGY) is getting ahead of the game with zero-emissions planes from electric plane maker Eviation. The company announced that it had submitted a purchase order for 12 electric Alice eCargo planes. The aircraft will be delivered by 2024 and will aid in the company's initiative to operate an entirely electric network for express shipping. Three more years of gas, we're counting.
- Stock Up on Toilet Paper - The recent surge in COVID-19 infections is creating problems in the international supply chain once again, according to Bloomberg. With cases spiking in Asian countries, experts are showing concern that shipping costs could soon rise as nearly half of the world's global exports come from the continent. A number of countries have already begun slowing down production or shut down altogether because of outbreaks. Not again.
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| | | | | Missing the daily trade insights from Before the Bell? No worries.
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| | | HIT OR MISS: Who's on Deck for Earnings
- Monday, August 16th - Riot Blockchain (RIOT), Roblox (RBLX), Ideanomics (IDEX), Tencent Music Entertainment Group (TME), Canoo (GOEV), FreightCar America (RAIL), Stratus Properties (STRS), Orbital Energy Group (OEG), Vermillion Energy Inc. (VET), MICT, Inc (MICT), UWM Holdings Corp. (UWMC), CBAK Energy Technology (CBAT)
- Tuesday, August 17th - Huya Inc. (HUYA), Sea Ltd. (SE), Sorrento Therapeutics (SRNE), Walmart Inc. (WMT), Home Depot (HD), StoneCo Ltd. (STNE), Cree Inc. (CREE), Agilent Technologies (A), BHP Group (BHP), Krispy Kreme (DNUT), La-Z-Boy Inc. (LZB), Azure Power Global (AZRE), Monday.com (MNDY), AST SpaceMobile (ASTS), Harbor Custom Development (HCDI)
- Wednesday, August 18th - Vipshop Holdings (VIPS), Childrens Place (PLCE), WEIBO Corp (WB), Lumentum Holdings (LITE), Brinker International (EAT), Target (TGT), Lowes Companies (LOW), Tjx Companies (TJX), Analog Devices (ADI), Nvidia Corp. (NVDA), Cisco Systems (CSCO), JOYY Inc. (YY), Synopsys Inc. (SNPS), Red Robin Gourmet Burgers (RRGB), Bath & Body Works, Inc. (BBWI), Victoria's Secret & Co. (VSCO)
- Thursday, August 19th - Bilibili (BILI), Tapestry (TPR), KOHLS Corp (KSS), First Majestic Silver Corp. (AG), Macy's Inc. (M), Applied Materials (AMAT), BJ's Wholesale (BJ), Ross Stores (ROST), Petco Health and Wellness (WOOF), Estée Lauder Companies (EL), SPAR Group (SGRP)
- Friday, August 20th - Deere & Co. (DE), Foot Locker (FL), PainReform (PRFX), Flora Growth Corp. (FLGC), The Cato Corporation (CATO), CEL-SCI Corporation (CVM), Williams-Sonoma Inc. (WSM)
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| | | Enjoying Dawn Report? Learn something, made some money?SHARE YOUR STORY WITH US OR TELL US HOW TO SERVE YOU BETTER.Let us know at info@rogueinvesting.com |
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