Yay Capitalism! - August 29, 2017

Most weeks I link up with two smart analysts (@rorycarron and @TMFWillSommers) on Skype for 30 minutes or so to talk shop. Rory is covering stocks for our friends over at Rubicoin and Brendan is getting stuff done for us here at The Motley Fool. These are not service specific talks, just a chance for the three of us to link up and chat. I figured it's easy enough to just keep our notes here for posterity and for anyone else who may be interested. Enjoy!  

ULTA Salon (ULTA)

• Recent earnings looked great, the stock is still having a poor year down almost 20%. Why was there a negative reaction to what seemed like a positive quarter?
• The market may be pricing in margin challenges going forward. They will be competing on pricing more in the future. Will that large store base become a drag at some point?
• The stock is down from our last update on the MDP watch list when shares were trading at $230. I pegged our interest range of $200 - $220 as where we would want to being this more into the discussion.
• Management sees a range of 1,400 – 1,700 stores total. They are at 1,000 now.
• Loyalty program of 25.4 million members likely overstates how many are actually meaningful to the company’s base. Probably makes sense to discount it by half to find the true number of customers that will be long-term drivers versus the one-timers who sign up for a discount on the spot. An ULTA loyalty membership is not like a Prime membership. This is important as 90% of ULTA’s sales come from loyalty members.
• Positive market characteristics: Makeup is a resilient segment, folks like to get to the stores to physically see offerings, they have a lot of good SKUs/brands available, wide selection, the salon/services segment ULTA offers is a bit of a differentiator. There are some Home Depot-like characteristics in play here.
• What’s driving these strong comp numbers? Part of it has to do with the pace of new openings. They are opening around 100 stores per year give or take and it takes two to three years for new stores to reach mature comps. This could be an indicator perhaps of comps normalizing at some point but that should still be at least a few years out, possibly even five or more. This is a good thing, means that they could continue to post impressive comps for some time to come.
• This is a good retailer in a sea of really bad ones. The market will pay up for strong retailers.
• How many more stores can they open? This isn’t one to buy and hold blindly, but it is one that could offer some attractive upside in the coming years.

American Tower (AMT)

• Play on the long-term trend of wireless data, this is the largest wireless tower operator. Non-cancelable leases and price escalators in contracts make for predictable cash flows.
• REIT structure allows for very attractive income yields for long-term investors.

Atlassian (TEAM)

• High growth company growing the top line at impressive rates early on that focuses on collaborative software like Trello for example.
• This is an interesting name, but a high growth company that is still unprofitable. It is cash flow positive, but stock based comp is still notable. Very difficult to determine what a reasonable price is for a company with no real obvious competitive advantages.
• A key to the model is that they don’t employ a sales force. Early on word of mouth and grass roots can work, but is this sustainable in the longer-run? Is the model based on some early successes or is this something they can continue to replicate and iterate?