In the world of investing, it seems like nearly everyone is trying to spot the next trend. Two big ones in business right now -- high-quality customer loyalty programs, and high-quality fake meat. In today's MarketFoolery podcast, host Chris Hill and senior analyst Emily Flippen have some useful thoughts to offer on both. First, they'll answer a query from a listener looking to find public companies he can invest in that help retailers manage their rewards programs. (Two stand out.) And last, they'll talk about vegetarian protein superstar Beyond Meat (NASDAQ:BYND), which will deliver its quarterly report after the market close on Monday. So, yes, that will happen before you get to read this, but they'll give you some good advice on how to read the report, regardless of what it says. And in between, they answer one more reader question: What are the best tools for retail investors to use to analyze how management is impacting a company's investment thesis?
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.
This video was recorded on July 29, 2019.
Chris Hill: It's Monday, July 29th. Welcome to MarketFoolery! I'm Chris Hill. Joining me in studio, the one and only Emily Flippen. Thanks for being here!
Emily Flippen: Thanks for having me!
Hill: We're going to do a little bit of an earnings preview. But first, we're going to dip into the Fool mailbag. A nice chance for me to remind folks that we like getting mail. Who doesn't like getting mail? Our email address is firstname.lastname@example.org. A question from Mike Patrick, who writes, "Whenever the topic of retailers comes up, someone mentions their rewards program. Is there a publicly traded company that helps these retailers manage their rewards programs? I've often wondered about this, but I don't have any idea where to start the research." Well, you came to the right place, Mike. What about this? He's right. Last week on Motley Fool Money, we were talking about retailers and restaurant companies. Frequently, the rewards program comes up.
Flippen: Their rewards program is vital, actually, for the performance of a lot of great companies. As such, many companies manage it their own. There are smaller, non-publicly traded companies that may help with rewards programs. But there are actually two big publicly traded companies that are really doing well in the business of helping companies manage their rewards programs. The first one is probably a company everybody knows, but doesn't realize that they work in this space, and that's Shopify. Shopify, while obviously helping small businesses with their e-commerce presence, their payments solutions, they actually have robust loyalty program management as well. A lot of these small businesses -- if you're going online and buying something directly from a producer of the product, and you get a loyalty email from them, or sign up for some sort of program, that is more than likely managed by Shopify. And it's been one of the more lucrative aspects of their business.
Also, another company, and my personal favorite, though it doesn't get much love around here, is actually a company called StoneCo, ticker STNE. It's a Brazilian payment processor. They actually acquired a company called Collact and they have an innovative way of managing rewards programs. What they do is they actually track credit cards. When you go into one of their retail outlets and you pay with a credit card on a StoneCo machine, it gets your name, it gets your information, and then it tracks how often you go there. Let's say that you go to a coffee store on your way to work three times a week. They'll track that. You paid with the same card, you buy the same coffee, and then one week you say, "I'm not feeling coffee," you keep skipping, well, what they'll do is, they'll send you an email and say, "Hey, 10% off your next purchase!" to reincentivize you to start going back to that probably bad habit of getting coffee three times a week.
Hill: Bad habit? What are you talking about? That's the one of the healthiest things you can do.
Flippen: That's what I tell myself, too, although if you see how much sugar and milk I put in my coffee, you'd probably be saying the opposite.
Flippen: But the point being, there are lots of companies that are operating in the space. I do think StoneCo and Shopify are two of my favorites. And they're kind of under the radar when you look at their loyalty program support systems.
Hill: Mike gets at something, we've talked about this with restaurants before, where it seems like restaurants are now at the point where, if you're thinking about investing in a restaurant, one of the questions on your checklist should be, what is their delivery strategy? Do they have one? What is it? How well is it working? Etc. I think Mike's question gets at something, a cousin of that. If you're investing in a retailer, what is their rewards program? We were talking before we started recording. Speaking of coffee, as a longtime Starbucks shareholder, in general, I'm obviously thrilled with how the business has been run for the last 20 years. But for a good stretch of time, and we talked a little bit about this on Motley Fool Money the other day, their rewards program was bizarrely, to me, a massive underperformer, when you consider how big the company is, how successful they've been, it is one of those habit-forming sayings. So, the fact that they were trailing so many different retailers and businesses in terms of the number of people in the rewards program said to me, they're doing this wrong. It seems like under Kevin Johnson, they're starting to get that right.
Flippen: It's important to remember that not all awards programs or loyalty programs were made the same. While it's true that Starbucks didn't make a concerted effort to improve their rewards program, ultimately the quality of the people they have in their program is very different than a lot of the retailers that they were being compared to. Even if you look at DSW, or Lululemon, Victoria's Secret, for instance, all of these companies are loyalty programs that people put just their emails in when they purchase an item. That doesn't necessarily mean that you've made the decision to become an active part of their loyalty community. The vast majority of these people are just getting these emails that are being sent to spam and not engaging with them at all. Starbucks was completely different. When you ordered a drink at Starbucks, they didn't ask you for your phone number or your email address the way they do at other retailers. So, it's unfair to look at Starbucks' loyalty program and compare it in terms of numbers to another company's.
That being said, it was clear they needed to do something to improve the number of people they do have in it, because there's a lot of optionality there. I think over the past couple of quarters, they've shown that they have been making strides in getting members into their program. But it's important to remember that not rewards programs are the same.
Hill: Question from Eric Nordsted. He writes, "I was wondering how y'all go about researching company management, I understand certain cash flow metrics can be used to see how they are reinvesting, paying down debt, or paying dividends. But other than that, is there a certain website or some other resource to analyze management within a company?"
Great question! At the end of the day, it's actual human beings running these businesses.
Flippen: That was exactly what I was going to say. The best resources for analyzing management is actually yourself. You can always use metrics like the ones you mentioned. But when push comes to shove, I think we are the best judge of character as humans. And when you're investing in a company, you should be considering it like you're giving your money over to management, because in a sense, you are. You're giving your money to a company to allow management to spend it as they see fit. So, when you look at it that way, the question actually becomes a little different. It's not about analyzing management within a company on a general level. It's actually about evaluating their decision-making skills, their capital allocation skills. Do you trust them to make the right decision with your money? That's where things get personal. A lot of investors around here tend to think, OK, insider ownership is a big catalyst for that. Management's likely to make decisions with capital that benefits themselves. If they own a lot of shares, they're likely to make decisions that will improve shareholder returns. While I like to see insider ownership, I don't like to depend on that kind of selfishness to determine whether or not I'm going to get my money over. I want to see management actually simply not caring at all about the stock price. That's meaningful to me because I want to see that they're more focused about important things -- leading the company, building a good company. They build a good company; the stock price follows. It's not the other way around.
I think a good example of management that's exemplified this, bringing up Shopify again, Tobias Lütke. He's said numerous times, despite the fact that he's a 7% shareholder, he doesn't concern himself with the stock price at all. He doesn't spend any time thinking about it. The only thing he's focused on is that customer experience, the small business experience on his platform. I trust somebody like that to manage my money.
So, I think, push comes to shove, to make a long story short, use your personal judgment. Listen to them, how they speak on earnings calls. Listen to their strategic planning moving forward. And think, do I trust this person to do what's best with my money?
Hill: One other resource I'll mention is YouTube. I always find it instructive to see, what does this person look like? What do they sound like? Particularly when they are in an interview setting, whether it's clips of them on CNBC or Bloomberg or on stage in front of a live audience, you get a good sense of what they're like. Some are more polished than others. By the way, that can cut both ways. Some CEOs can be polished to the point of being slick, and not in a good way. But, you mentioned the earnings calls. I think it's always interesting to see, are they on the call? If so, who else is on the call? Are they deferring to people? What sort of management team do they have around them? Everybody has weaknesses, and the great CEOs not only recognize what their weaknesses are, but they build systems and teams around them to compensate for it.
Flippen: Oh, I love that! Humans can pick up on aspects of that -- whether it be conversations, answers -- that numbers simply don't get. I will just add, you mentioned dividends, share buybacks there. When it comes down to capital allocation, if the best thing management can do is issue dividends or buy back shares, you should be thinking to yourself, what is management doing for me that no other company can do? Anybody can take your money and then turn it around and buy back shares or issue dividends. You want to see somebody who's giving some value back to you. Couldn't agree more, listen to them, get a sense of who they are as a person, and then ultimately determine whether or not you trust them and how they spend their money.
Hill: After the market closes today, Beyond Meat issues their quarterly earnings. What should we be looking for in this? We talked a little bit about this on Motley Fool Money the other day. This is a stock that really seems like it's in the mania zone in terms of what is happening with it. Every little announcement that comes out from Beyond Meat over the past month or so seems to do nothing but push the stock up higher. I should add parenthetically, it's down about 5% today, but it's up almost 50% over the past month.
Flippen: I'll just add on there that anybody who's maybe planning on trying to buy Beyond Meat as a result of today's earnings call, that is not investing at that point, it is gambling, simply because the valuation here has not had any reasonable basis behind it. That's not to say that I think the stock is going to perform poorly. But it is to say that we could see a great earnings report this quarter and the stock could be down or it could be up 20%. It's a stock that's hard to predict, and doesn't move rationally with the market.
With all of this being said, the market's looking for revenue of just over $50 million, which would be over 200% where it was a year ago. But given its last quarter, it does seem reasonable. They're going to need to post impressive growth in both their retail segment, which is your basic consumer going into a grocery store and buying Beyond Meat, as well as their restaurant segment, which is third-party restaurant sales. They're also going to need to prove that they can meet all of this demand. There's a big question last quarter about whether or not they had the capacity to meet skyrocketing demand, or if we're going to see a production bottleneck. We haven't seen that yet. I'm not sure if we will see it. But undoubtedly, people are looking to see, how is production ramping up to meet all of this demand? And that demand is a lot. We've seen recently that Dunkin' Brands is starting to add a Beyond Meat sausage to their breakfast lineup joining Tim Hortons in that. There's lots of different levers that Beyond Meat still has to pull, and a lot of potential partnerships that could make Beyond Meat become the dominant meat alternative.
But even with this revenue of over $50 million, they're still projected to lose $4.5 million. It's important to remember that this is not a profitable company. That would be less than their loss last year at $7.4 million, but still a loss nonetheless. Remember that this is ultimately a $14 billion company. To say that it's cheap would be a gross understatement. But that being said, I would not go out and short this company yet because the market has proven that it can stay irrational on this company longer than investors can stay liquid. I'll be excited to see what's reported. I have no clue how the market will respond. Even if they meet expectations. It could be a good thing, it could be a bad thing. Either way, it's exciting!
Hill: It's going to be worth watching, though. Emily Flippen, thanks for being here!
Flippen: Thanks for having me!
Hill: As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery! This show is mixed by Dan Boyd. I'm Chris Hill. Thanks for listening! We'll see you tomorrow!