Investing in growth stocks. Identifying good companies at good valuations.

I look for this when I buy growth stocks. 

I haven't invested in any growth stocks...yet! Waiting for the crash, then will pick up Square (SQ) cheap. Or anything. 

I look at these three specific criteria on finviz: 

1. Gross margin over 30%. 
2. Past 5 years sales growth over 15%. (CAGR > 15%.)
3. P/S = 4 or lower. I will tell you why, there is a very specific reasoning. 

There are many more metrics. Less debt, high insider ownership, but I don't want to exclude good companies. 

Reasoning:

1) A good high margin business means over time as scale is reached, more profits will fall down to bottom line (profit.) Operating margin will gradually improve, I am not worried. Look at Mastercard. 

2) This defines growth stock. I want it to grow insane. I expect it to grow exponentially going forward. 

3) P/S = 4 cannot be more than 4. This is valuation. I cannot overpay for a stock. Obviously I want to pay cheaper but I find that good growth stocks never reach p/s below 3-4. I have studies. If you can catch some at the level, it's crazy. Obviously for the very growth stocks we can pay up. We have to pay up. But otherwise p/s = 4 is good. 

If it's in its early stages of development low debt will make sure it doesn't eat itself up. For young growth stocks it is essential that there is high insider ownership to make sure the company goes right in the long term and not guided by short term incentives that can hurt itself. Not necessary, but always something to see. If the CEO has $10,000,000 worth of stock, he will wake up at 2 am to take care of his baby.

Earnings is not necessary (net income.) I expect them to improve their margins quickly so that EBITDA is positive. Often what you see is that the really good companies have positive ebitda immediately, so that they don't burn cash. They do burn cash to grow aggressively. If you look at Amazon, Facebook, all had positive ebitda almost immediately. This is the sign of a sustainable company. Not necessary, but comforting. It lives off its own cash, it doesn't need cash injections (equity+debt). 

Study:

CRM- lowest p/s it ever went- 3.09    2009 crash

FRPT- p/s = 2.04                                 2016 shortly after IPO (lock-up)

MA- p/s = 3.52                                    2008 crash

MSCI- p/s = 3.44                                2008 shortly after IPO and crash

SQ- p/s = 2.19                                    At IPO, never got cheaper

Many stocks out there that never dipped below p/s = 4. We have been in a crazy overvalued bull market. Things are always priced in years ahead because of low interest rates, pension funds and endowments and other "safe" investors come into stock market for yield because there's nothing in bonds. 

BBGI is a scam. You must read the 10-k.

tl;dr scammy related third party transactions. 

I made a YouTube video about this. You don't need to watch it because everything is covered in the article. 

Welcome back stonkers.

We all love investing. Some love investing in hyped spacs. Some love investing in overvalued tech stocks with p/s = 60. Whatever it is, we all "invest" in hopes of making money. 

BBGI is a scam. Beasley broadcast group, a radio station company. And you won't know if you never read the 10-k. The financials look good, that's what brought me into the stock. I found it on finviz.com. 

This article will illustrate why you must read the 10-k (annual report.)

Some key things to note. I will tell you the important things. Everything is provided proof in the footnotes. 

• Essentially this is a company that makes money by advertising on their radio stations. Figure 1. Page 4. 
• It is run by a family. Insider owns 60% of the voting control. He controls the company. ***key metric. Figure 2. Page 17.
• Main part: BBGI invested $1.3 million into Digital PowerRadio LLC, a company owned by Mark Fowler, a director of BBGI. The company dissolved itself, the patents are useless. December 2019 BBGI wrote it off as a loss. This is screaming conflict of interest. Figure 4. Page 54. 
• Main part: BBGI sells towers and radio stations to the Beasley private LLC. Then leases it back for ludicrous valuations: figure 5. Page 18. See "related third party lease." 
• They sold radio station in Charlotte, NC to private LLC for $400,000. Leased it back for $100,000/yr. Lease expires in 2025! They make their money back! Figure 6. Page 54. 
• They claim that the terms are as favorable as getting it from a third party. Bullshit!!!! Figure 7. Page 29. 
• They rent their principal executive office from private LLC for $200,000/yr. Figure 8. Page 53. 
• They lease a tower for 19 radio stations for $400,000/yr. Figure 9. Page 54. 
• They lease property for radio stations from private LLC for $200,00 yr. Lease expires 2024. Juicy cash flow. Figure 10. Page 54. 
• They lease towers for one radio station in Tampa, FL, from private LLC for $31,000 yr. Lease expires 2025. Figure 11. Page 54. 
• They lease towers for two radio stations from private LLC until 2038! Rental expense in 2018 is $100,000/yr. Rental expense in 2019 is $200,000/yr. They increased it by $100,000 wtf. Figure 12. Page 53.
• Their third party lease with an unknown party is so much cheaper. only $13,000 for 2018 and $11,000 for 2019. Figure 13. Page 54. 
• BBGI leases several towers for one radio station in Boca Ration, FL. Rental expense $100,000/yr. They sold it to private LLC in 2006. Milking the cow. Figure 14. Page 54.
• BBGI leases land from private LLC for $45,000/year. Lease expires 2023. Figure 15. Page 54.
• BBGI leases property in Lase Vegas from private LLC for $200,000/yr until 2023. Figure 16. Page 54.

In summary:

BBGI sells land, tower, radio stations to its private LLC and rents it back at ludicrous rates, all the while locking in long expirations. They get their money back. Look at the examples above. There is one incident where BBGI dumped $1.3 million into a related company owned by the director of BBGI and immediately wrote it off as a loss. Something is very wrong. Hidden behind closed doors.

This is a microcap: market cap is $58M as time of writing (Jan 19 2021). Often this microcaps have no coverage by analysts. That is why it is essential you must do your research. This information cannot be found online-- I searched! Some people posted about it on SeekingAlpha-- check it out it's a free website where writers post their thoughts/articles about companies. Applies to all companies. 

Insider are milking this company. That's why you must the 10k.

Peace out stonkers. - stonk slayd

footnotes:

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Figure 16. 

What to buy in a market crash? - short read 4 mins.

 ***I have a request for you at the bottom.***

When a market crashes, stonks go down. Image 0.

Image 1. For those you less inclined, I put a visual for you to understand better. Image from finviz. Two metrics: stock price less than 70% 52-week high. And insider buying. Also, as an extra I look for dividend paying stocks (showed in image 1) so that I get dividends while I wait for stocks to go up.

Where do you get insider buying data for NYSE and NASDAQ? openinsider.com and finviz.com.

They come from form 4, and these websites compile it for you.

Let me show you some examples. 

What does this get you? This gets you stock that the market thinks is bad, but the insiders know better and are buying their stock hand over fist. Insiders are corporate insiders (CEO, COO, CFO, CIO, CMO, VP operations, VP internal external, and directors.) Deeply undervalued stocks. Just this March Corona-beer (see image 2) crash so many insiders bought at depressed stock levels and now they are up 200%, 300%, 400%, and beyond 1000%. Insiders are not stupid, they don't buy stock to lose money. They buy stock to make money. They only buy if its profitable. Remember, on top of their stock compensation, on top of their stock options, they go out and buy open market buys of stocks, that means they are really convicted, sure of themselves.

During a market crash, there is a lot of uncertainty. Usually the bubble pops, perhaps an economic downturn, and many companies may go bankrupt if daddy J. Powell doesn't step in and turn on the money printer (unfortunately.) Refer to image 3. 

What to look for in insider buying:

This is very important. Don't just buy every stock that insiders buy. You must look for multiple insiders buying stock. Not just one insider buying the stock. You want them to buy a sizeable portion, not just a small bit. They need to buy with conviction. Like this: 

 

$DCP nyse stonk up 750%.

$COWN nasdaq stonk up 350%. 

Multiple insiders buying and sizeable amounts (lots of insider buying.) No baby buying. 

Obviously I do own my financial analysis with these guys before buying stock.

*also it is not a bad idea to look for companies that have low debt (low D/E ratio) because in a market downturn it is hard to get refinancing and it is very expensive. Better to have cash. 

Let's change the name to stonk market. Sign this petition. http://chng.it/jhqynPGhJ2. Every vote counts. You matter!

Appendices Images.

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