Using Veritas to Construct the "Per…

29-04-2017 Hits:86572 BoomBustBlog Reggie Middleton

Using Veritas to Construct the "Perfect" Digital Investment Portfolio" & How to Value "Hard to Value" tokens, Pt 1

The golden grail of investing is to find that investable asset that provides the greatest reward with the least risk. Alas, despite how commonsensical that precept seems to be, many...

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The Veritas 2017 Token Offering Summary …

15-04-2017 Hits:80649 BoomBustBlog Reggie Middleton

The Veritas 2017 Token Offering Summary Available For Download and Sharing

The Veritas Offering Summary is now available for download, which packs all the information about Veritas in a single page. A step by step guide to purchasing Veritas can be downloaded here.

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What Happens When the Fund Fee Fight Hit…

10-04-2017 Hits:80481 BoomBustBlog Reggie Middleton

What Happens When the Fund Fee Fight Hits the Blockchain

A hedge fund recently made news by securitizing its LP units as Ethereum-based tokens and selling them as tradeable (thereby liquid) assets. This brings technology to the VC industry that...

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Veritaseum: The ICO That's Ushering in t…

07-04-2017 Hits:84960 BoomBustBlog Reggie Middleton

Veritaseum: The ICO That's Ushering in the Era of P2P Capital Markets

Veritaseum is in the process of building peer-to-peer capital markets that enable financial and value market participants to deal directly with each other on a counterparty risk-free basis in lieu...

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This Is Ground Zero for the 2017 Veritas…

03-04-2017 Hits:81492 BoomBustBlog Reggie Middleton

This Is Ground Zero for the 2017 Veritas Offering. Are You Ready to Get Your Key to the P2P Capital Markets?

This is the link to the Veritas Crowdsale landing page. Here is where you will be able to buy the Veritas ICO when it is launched in mid-April. Below, please...

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What is the Value Proposition For Verita…

01-04-2017 Hits:83678 BoomBustBlog Reggie Middleton

What is the Value Proposition For Veritas, Veritaseum's Software Token?

 A YouTube commenter asked a very good question that we will like to take some time to answer. The question was, verbatim: I've watched your video and gone through the slides. The exchange...

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This Real Estate Bubble, Like Some Relat…

28-03-2017 Hits:54722 BoomBustBlog Reggie Middleton

This Real Estate Bubble, Like Some Relationships, Is Complicated...

CNBC reports US home prices rise 5.9 percent to 31-month high in January according to S&P CoreLogic Case-Shiller. This puts the 20 city index close to an all time high, including...

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Bloomberg Chimes In With My Warnings As …

28-03-2017 Hits:82884 BoomBustBlog Reggie Middleton

Bloomberg Chimes In With My Warnings As Landlords Offer First Time Ever Concessions to Retail Renters

Over the last quarter I've been warning about the significant weakness in retailers and the retail real estate that most occupy (links supplied below). Now, Bloomberg reports: Manhattan Landlords Are Offering...

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Our Apple Analysis This Week - This Comp…

27-03-2017 Hits:82670 BoomBustBlog Reggie Middleton

Our Apple Analysis This Week - This Company Is Not What Most Think It IS

We will releasing our Apple forensic analysis and valuation this week for subscribers (click here to subscribe - lowest tier is the same as a Netflix subscription). As can be...

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The Country's First Newly Elected Lame D…

27-03-2017 Hits:82549 BoomBustBlog Reggie Middleton

The Country's First Newly Elected Lame Duck President Will Cause Massive Reversal Of Speculative Gains

Note: Subscribers should reference  the paywall material here for stocks that should give a good risk/reward scenario for bearish trades. The Trump administration's legislative outlook is effectively a political desert, with...

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Sears Finally Throws In The Towel Exactl…

22-03-2017 Hits:88715 BoomBustBlog Reggie Middleton

Sears Finally Throws In The Towel Exactly When I Predicted "has ‘substantial doubt’ about its future"

My prediction of Sears collapsing once interest rates started ticking upwards was absolutely on point.

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The Transformation of Television in Amer…

21-03-2017 Hits:86508 BoomBustBlog Reggie Middleton

The Transformation of Television in America and Worldwide

TV has changed more in the past 10 years than it has since it's inception nearly 100 years ago This change is profound, and the primary benefactors look and act...

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This blog's first long biased forensic analysis is now available, and I am releasing it to the public (this one time) to illustrate the depth of the work that is put into these efforts.

This is the first of several long-biased research reports. I would like to make clear from the start - this is not investment advice. This is the result of my search for a company that has high growth potential, healthy metrics and is underpriced. I have a 6 to 18 month investment horizon. This research is for use in my own investment operations and is presented to subscribers and (for this instance) blog readers for illustrative purposes only. Althoug this is long-biased research, I am still bearish on the US equity market in general. This also serves as an opportunity for me to highlight a company that makes a tangible product that actually helps society (educates children), and exhibits rapid growth without bankrupting state governments, requiring billions in federal bailout funds, or having to resort in paying 50% of its net revenues to its employees after accepting said federal bailouts. I, of course, am not naming any names (but if I were to do so, here is where the names would be). I'm sorry, but the record bonuses generated from taxpayer funds really grates my nerves.

There are two things that will really stand out about the analysis and opinion that comes out of this site. For one, the team that generates it is very smart, with both a deep and broad knowledge base and skill set. They are not amateurs. The second thing is increasingly difficult to find in the investment world today - I/we are BRUTALLY honest. There are no big client's asses to kiss, there is no advertisers to be beholden to, and I have been a Wall Street outsider my whole life. I call it as I see it. The good, the bad, and the ugly. This has pissed off the management of General Growth Properties (who are now bankrupt - see GGP and the type of investigative analysis you will not get from your brokerage house), Lehman ("Is Lehman really a lemming in disguise?") and Bear Stearns (Is this the Breaking of the Bear?)) also both also bankrupt, or the equivalent thereof, MBIA and ABK (effectively in runoff mode, aka bankrupt - see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion,   Follow up to the Ambac Analysis, and Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility), and a whole host of other companies. Well, now I have some nice things to say, and I hope corporate management can be as sweet to me as they have been mean. If not, well, you know what I'll say...

I invite all to learn more about virtual schools, and the potential growth opportunity. I also welcome all to peruse and participate in the bear debate published in the Wall Street Journal concerning the subject of the long biased report. Of course, I feel that we have performed superior research, but sometimes one needs to hear the opposing argument to truly appreciate the quality of the extant argument. Feel free to download the professional version of the forensic analysis here: pdf  K12 Forensic Analysis (ticker:LRN) 2009-07-20 07:54:32 619.70 Kb . Those who wish to subscribe to the research may do so by clicking here.

The Bear Argument

Barron's recently ran an article citing LRN as short candidate. Obviously, their viewpoint is diametrically opposed to mine. I have excerpted a portion of that article here, and have offered a rebuttal to it, which is also available in verbose, long form via the forensic analysis download. From the Barron's article:

"K12 is viewed by Guild as a "limited-market" story. "When Wall Street gets excited by a new product," he remarks, "it overestimates the size of the market." K12's product is an online educational package for home-based students from kindergarten through high school. The company can also provide live teachers for students who really need help.

Guild cites research showing that on-line learning has clear benefits for a very limited number of students, and he adds that state and local budget cuts threaten to reduce per-student support. K12 Chief Financial Officer John Baule notes that the company's market is now quite small and has lots of room to grow. The key question, however, is whether the stock deserves a price/earnings multiple of 50. If its earnings growth slows and its P/E shrinks to, say, 25, the stock, recently in the low 20s, could fall sharply."

The Counter to the Bear Argument

We agree that growth stocks such as LRN tend to have an inherent risk of contraction in valuation multiple due to decline in near-term decline earnings. However, we have looked at the company's potential from medium-to-long-term perspective, which draws quite a favourable scenario. Based on our DCF valuation, which takes into consideration long-term potential and variability in earnings growth and margin expansion, we determined that the stock presented upside potential at its then listed price. We believe valuing this company based on a P/E multiple alone would not be appropriate as it is important to reflect an element of future potential growth in the price, which unfortunately gets ignored if P/E is used standalone for valuation. This is the reason why practically all successful growth companies trade at high P/E's!

Based on DCF based valuation we had arrived at a valuation of $30.71 per share. Also, if end users  review the assumptions we used in our LRN modelling (available in the professional edition of the LRN Forensic Anlalysis, you would find that most of the assumptions that we took are far more conservative compared to the performance of the company in the past few years.

Enrollment growth:  We applied reasonable enrollment growth rates of 24% and 23% for 2010 and 2011, respectively against y-o-y enrollment growth of 51% and 37% in 2008 and 9 months ending 2009, respectively. Considering the historical performance, the above enrollments growths seem to be based on a very conservative stance with an expected addition of just 4 states over the next couple of years (K12 has actually added 4 states this fiscal year, alone), and 26% and 23% increase in same state enrollment growth in 2010 and 2011, respectively compared with 29.7% and 30.8% for 2008 and nine months ended March 2009, respectively. Our growth estimates are very, very conservative.

Market Share growth: We have already taken into consideration the "limited" market perspective of K12 and incorporated that into the model by limiting K12's total enrollments to just 0.20% and 0.28% of total U.S enrollments by 2012 and 2017, respectively from 0.11% presently.  We agree that there could be short term risks in the form of budget cuts which we highlighted in the investment risks section of the forensic analysis and report. However, we do not foresee a decline in education budget spending that is large enough to pose a key risk from an investment perspective. Also, for K12's revenues growth, enrollment growth tends to be a more important driver than growth in revenue per enrollment, and any slowdown in revenue per enrollment would be more than offset by higher enrollment growth without impacting revenues growth by a material percentage from our assumptions.