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The Investors" Corner

Paul Cerro

Cedar Grove Capital"s quick equity takes and business interviews. cedargrovecapital.substack.com

business investing

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12:41

M&A Arb: Microsoft / Activision Deal Part I

The Investors" Corner ·

2023/03/24

If you like today’s post, please like and share. I run a combination of a free and paid newsletter that highlights my notes, thoughts, opinions, and trade ideas.You can do so by subscribing via the link below and selecting which part you would like to be a part of.Hey folks, thanks for joining me again for another post by Cedar Grove Capital Management. Today I’m revisiting the Microsoft $MSFT and Activision $ATVI deal that we originally wrote about in April of 2022.If you’re interested in our

20:19

Winter is Coming

The Investors" Corner ·

2022/12/24

Hey everyone, welcome back to another article by Cedar Grove Capital Management.If you like today’s post, please hit the heart button, comment with any feedback, and share it with friends if you find it useful.This post might be too long for your email so if it abruptly cuts out, just open it in your browser to see the whole thing.IntroductionBack in September, we published our thoughts on the consumer and what led us to liquidate our positions due to what we believed was not a light at the end of

0:10

Empty Words. Empty Promises. Exert Patience.

The Investors" Corner ·

2022/12/13

If you like today’s post, please be sure to hit the heart button, comment with any feedback, and share it with friends if you find it useful.Cannabis has been quite the whirlwind over the last few years. Many investors know the pain of holding onto the hopes of a change in governmental policy that would immediately change the cannabis market.These changes specifically revolve around SAFE banking and the effect of what 280E would have on each of U.S. cannabis’ financial statements. I wrote about this

22:30

PTON: A Zero or Hero?

The Investors" Corner ·

2022/10/31

If you like today’s post, please be sure to hit the heart button, comment with any feedback, and share it with friends if you find it useful.For those of you that may or may not know, I’ve said one or two negative things about Peloton (PTON) in the past.Okay, so I’ve been pretty pessimistic about Peloton, but how could you not be? The stock has performed so poorly that PTON is down >68% from its IPO day closing price back in 2019!Once one of the best-performing darlings during COVID, this company

11:09

F45 (FXLV) M&A Arbitrage Play

The Investors" Corner ·

2022/10/10

If you like today’s post, please be sure to hit the heart button, comment with any feedback, and share it with friends if you find it useful.At the end of September, F45 Training (FXLV) received an unsolicited proposal from one of its investors, Kennedy Lewis Investment Management LP (KLIM), to acquire the company in a $385 million take-private offer at $4.00 a share. For those of you that don’t know, F45 Training is the fitness studio brand that had a big investment from actor Mark Wahlberg back in

13:17

Q3'22 CGC Quarterly Letter

The Investors" Corner ·

2022/10/01

Note: All information and commentary are as of September 30, 2022.*Correction, an earlier post/recording referenced a gross 5.9% return.Fund PerformanceIn Q3 2022, Cedar Grove Capital Management, LLC (“Cedar Grove Capital” or the Fund” or “CGC”) returned 10.2% gross return compared to -5.3% for the S&P 500, 3.8% for the S&P Consumer Discretionary ETF XLY, -13.9% for the Cannabis ETF, and -2.5% for the Russell 2000.Market CommentaryI will be the first to admit that 1H of this year took me completely

21:29

Why Petco Is A Better ROI Than Chewy

The Investors" Corner ·

2022/09/27

If you would like to listen to this post on Spotify, click here to visit our Podcast.If you like today’s post, please be sure to hit the heart button, comment with any feedback, and share it with friends if you find it useful.Petcare has been a big COVID beneficiary given the exponential growth in adoptions during the pandemic. This significant growth led to virtually increased spending in all categories: consumables, accessories, veterinary care, insurance, etc.With big-name public players like

19:27

Broken Arrow: The Consumer is Not "Okay"

The Investors" Corner ·

2022/09/06

This whole year so far, investors have been trying to gauge whether the consumer is okay. Many have pointed to various different data points that all have provided positive reassurance such as:Retail spendingTravel dataCOVID era savingsLow fixed mortgagesCompany earnings beat, etc.I know because I’m one of those investors. Investing in consumer and retail is what I do and while I have been burned in a few areas I have been more or less optimistic about the consumer based on all the other information

24:46

BBW: Stuffed With Unrecognized Value

The Investors" Corner ·

2022/08/30

I never knew that Build a Bear (BBW) was actually a publicly traded company until the start of this year. In fact, I didn’t even know the company was still around. It was a store that I grew up with over two decades ago and by coincidence, heard a pitch on it back in January by Strat Becker. He discussed the company and his long thesis via a Commonstock pitch to Ross Klein, CIO at Changebridge Capital and it definitely got my attention.I opted to forgo pursuing the stock further at that time because

16:59

Q2'22 CGC Quarterly Letter

The Investors" Corner ·

2022/08/10

Note: All information and commentary are as of June 30, 2022 except for M&A commentary on KSS and research posted for 1847 Goedeker.*Correction: A previous version said our Q2’22 performance was -31.2%.Fund PerformanceIn Q2 2022, Cedar Grove Capital Management, LLC (“Cedar Grove Capital” or the Fund” or “CGC”) returned -35.8% gross return compared to -16.4% for the S&P 500, -25.7% for the S&P Consumer Discretionary ETF XLY, -59.6% for the Cannabis ETF, and -23.9% for the Russell 2000.Market

XPOF: Unit Growth the Driver of Operational Leverage

The Investors" Corner ·

2022/06/22

Back in January of this year, we released our research on Xponential Fitness $XPOF and revealed our long position in the name. A link to original research that breaks down the business and our thoughts can be found here as well as my chat with Chit Chat Money about the company as well.What we didn’t touch base on was how their growth will help expand their operational leverage and thus, profitable margins. So this is that post. How Xponential Fitness is a homerun based on our original findings

9:47

Twitter Merger Arbitrage Very Attractive

The Investors" Corner ·

2022/06/13

So we all know about Elon Musk and his bid to acquire Twitter $TWTR earlier this spring. Given that it is Elon Musk, having a smooth acquisition was not in the cards so of course drama quickly ensued. Even though shares are trading at $38.98 and the offer price is $54.20 (so stupid), traders on the street are pricing in a deal happening at virtually zero. This is based on a pre-announcement price of $39.31 and a ($0.33) gain since then.This, however, has changed dramatically over the last two

Petco Vital Care Economics Fueling Growth

The Investors" Corner ·

2022/05/31

Last week, we released our research on Petco's $WOOF pre-earnings announcement and we were happy with the results [WOOF: Banking on the Pet Industry]. The company beat on all estimates and what seemed to be retail armageddon due to the likes of Target $TGT and Walmart $WMT had appeared not to spread to Petco. Due to this, the stock has rebounded ~13% off the lows of last Monday on strong earnings.Our main thesis for Petco focused on building an “end-to-end” ecosystem that promotes and encourages

4:50

The Real Reason The Stock Market Is Down

The Investors" Corner ·

2022/05/22

* On average over the past century, according to an analysis conducted by Ned Davis Research, the S&P 500 has performed better when its EPS was lower than a year previously — not higher.* The S&P 500’s best quarterly returns in the past have come when its trailing four-quarter EPS were between 20% lower and 5% higher than where they were one year prior. * With the exception of quarters in which EPS was more than 20% lower than a year earlier, there’s an inverse relationship between EPS growth and

26:42

WOOF: Banking on the Pet Industry

The Investors" Corner ·

2022/05/19

TL;DR* Petco’s omnichannel push will help it solidify itself as top pet health and wellness company with a strong defensible moat and loyal customer base* Continued push into value-added services creates a closed-ended one-stop-shop ecosystem for all pet owners* Its strategic initiatives will drive top-line growth and significantly improve the company’s profitability and cash flow* Given the company’s strategic growth initiatives, the market is mispricing the potential for Petco to deliver outsized

3:52

What Drives Total Shareholder Return

The Investors" Corner ·

2022/05/09

TSR Drivers (as % of TSR)I came across a deck made by Conor Hayley over at Alta Fox Capital which breaks down in a detailed 645-page report about what drives Total Shareholder Return for 104 companies he analyzed. Considering its length, I took one chart (above) that highlighted the three key drivers that data has shown to produce outsized returns and his commentary below.* On average, EBITDA growth contributed 59.82% of TSR and multiple expansion contributed 44.78% of TSR. * However, the medians

23:00

DPZ: Domino's Down But Not Out

The Investors" Corner ·

2022/04/27

BackgroundDomino’s Pizza $DPZ has had a stellar run over the past decade, rising over 1,030% during that time. The company has shown its ability to rapidly expand overall store count, expand margins, and not only fend off app-based delivery companies but go toe to toe with them. Underlying business fundamentals remain strong for the company and while headwinds with inflation have put pressure on the company, for now, recent price action has led to an attractive opportunity to start a position in a

20:36

M&A Trade Idea Returning ~70%?

The Investors" Corner ·

2022/04/20

TOC* Deal Specifics* Activision Context* Deal Price Action * What We Know* Odds of the Deal* Trade Strategy* Important Factors1) Deal SpecificsEarlier this year in January, Microsoft $MSFT announced it will acquire Activision Blizzard $ATVI for $95.00 per share (a 45% premium to its previous closing price), in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash."With Activision Blizzard's nearly 400 million monthly active players in 190 countries and three

6:05

SBC: This Is A Chart You Don't Want To Miss

The Investors" Corner ·

2022/04/13

SBC Is Propping Up Adj. EBITDA* Many unprofitable companies are leveraging the use of stock-based compensation (“SBC”) when it comes to add-backs specifically geared towards improving overall adjusted EBITDA* This add-back can make many “unprofitable” companies look profitable (or less unprofitable) on a non-GAAP basis because accounting labels it as a non-cash expense* However, some companies are abusing this add-back and I wanted to show how bad by taking a few examples and showing how much SBC is

13:31

Q1'22 CGC Quarterly Letter

The Investors" Corner ·

2022/04/08

Note: All information and commentary are as of March 31, 2022.*Performance was miscalculated and was updated to reflect the current return.Fund PerformanceIn Q1 2022, Cedar Grove Capital Management, LLC (“Cedar Grove Capital” or the Fund” or “CGC”) returned -17.7% gross return compared to -4.9% for the S&P 500, -9.5% for the S&P Consumer Discretionary ETF $XLY , -18.5% for the Cannabis ETF $MSOS , -7.8% for the Russell 2000, and -6.0% for the Russell 2000 Midcap. The Fund believes that its

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