Inc.

Amazon.com, Inc. (AMZN) – Buy

I initiated a new position last week in Amazon.com, Inc. (AMZN) at $1,657.24. It is our 8th largest position at this time.

Reason for current opportunity

The share price for Amazon has been under pressure because of a variety of threats:

  • Inability to make significant profits from the amazon.com retail business.
  • Political/social pressure from their growing size and influence on the retail industry.
  • Slowing growth in revenue.
  • International expansion difficulties.
  • Amazon Web Services competition from well capitalized competitors: Microsoft (MSFT) and Google (GOOG).

Why Amazon?

Amazon has been on my watch list for a while as I currently sell various products on Amazon and use their advertising system to advertise products. I shop there, but not nearly as much as I used to. For the last year or so, I moved more of my shopping to Walmart (WMT) due to lower prices mainly. I usually buy from Amazon if I cannot find the product at Walmart.com. Although it seems that many that shop at Amazon don’t necessary care about the lowest price and it has been shown to be a favorite among Generation Z and Millennials.

While Amazon has been reluctant to monetize Amazon.com due to aggressive plans to acquire market share, they have been able to grow and monetize Amazon Web Services, which produces the majority of their profits.

What I’m most excited about is their ability to collect ad revenue from vendors that promote their products on Amazon.com. This is how Facebook and Google make most of their revenue and by relying more upon 3rd party sellers, Amazon doesn’t need to worry about cost of goods. They make money no matter what, more like Ebay’s (EBAY) business model.

It seems that over time many consumers are skipping searching on Google and going right to Amazon.com first to do product research and on the flip side, many brands are putting more effort on selling on Amazon over selling directly on their own websites. Some will create a website just to direct customers to make the purchase on Amazon.com. It’s seems that over time, more brands could push more of the sales to a few marketplaces such as Amazon.com, Walmart.com and Ebay.com along with some niche players such as Etsy.com making less of need for many of the other retailers currently out there. While I don’t believe Amazon will end up with all retail, I do think that over time, we will end up with a lot less retailers and few large marketplaces where most online sales and maybe bricks and mortar business is done. The struggles of Bon Ton, Sears, Kmart, Circuit City, Toys ‘R’ Us to name a few show this is the case.

Valuation

Amazon currently trades at a:

  • 59.2 forward PE
  • Price/Book of 20.5
  • PEG of 1
  • PEG payback in years is 6.7
  • Dividend yield is 0

The forward PE and Price/Book are higher than I like and I usually prefer companies that pay a dividend. However, they have a huge earning potential and I think that this will grow significantly at some point. They could keep their margins on retail low, but make significant amounts from ad revenue like Facebook and Google do. The current PEG of 1 is very attractive to me and is why I see the stock is a bargain at this time.

I believe the current stock price drop represents a great opportunity for those not currently invested or with a small position in AMZN. If the price should continue to drop, I will most likely add to this initial position.

Carrols Restaurant Group, Inc. (TAST) – Buy

Once again, I added more to my position in Carrols Restaurant Group, Inc. (TAST) today at $10.79/share taking advantage of the recent price drop.

Carrol’s is now my 2nd largest holding.

I think at this level, it’s a great opportunity. The February earnings call had much to like in it. The last quarter and last year has shown the strong marketing capabilities of Burger King and how well Carrols in particular is at executing acquisitions and managing stores, despite increasing costs of beef and labor as well as increasing competitive pressure.

They continue to acquire restaurants which impacts earnings. However, book value continues to increase, which is how I choose to judge their performance along with total sales which continues to grow on same stores and total stores basis.

At this time, it’s estimated that Burger King franchise goes for over $500,000 to start one. However, with Carrols you are getting established franchises with top performing management in place for only $474,240 each as they currently have 807 stores and are valued at $382,712,000. From the earnings call above they have shown they they can quickly absorb and improve acquisitions and have several deals currently in negotiation right now, one of which includes 20-30 more stores. Overall, Carrols seems like a real bargain to me and I may continue to buy more shares if the price stays at this level or goes lower.

 

Carrols Restaurant Group, Inc. (TAST) – Buy

Once again, I added more to my position in Carrols Restaurant Group, Inc. (TAST) today at $10.79/share taking advantage of the continued price drop.

I more than doubled the amount of shares owned in Carrols with this buy. Carrol’s is now my 3rd largest holding.

I think at this level, it’s a great opportunity.

Carrols Restaurant Group, Inc. (TAST) – Buy

I added more to my position in Carrols Restaurant Group, Inc. (TAST) today at $10.94/share taking advantage of the continued pullback. Largest franchiser of Burger King restaurants. Adds efficiency to operations it acquires. Growing sales through acquisitions and comparable store sales. Increasing book value. However, short term profitability taking a hit due to increased labor, beef and promotions costs.

Here’s some comments from Motley Fool regarding Carrol’s.

I think at this level, it’s a great opportunity.

Carrols Restaurant Group, Inc. (TAST) – Buy

I initiated a new position today in Carrols Restaurant Group, Inc. (TAST) at $11.14.

Share price has been dropping most likely due to lower income which is due to a variety of factors including renovations, acquisitions, beef prices, promotions, and wage increases. Sales are from total and same stores increased over last year – they are in a strong growth phase through acquisition and renovation costs should drop considerably going forward.

Carrols seems to be really good at what they do and they are acquiring more stores a good price and within a short time improving the performance of acquisitions. Burger King is directly invested in them as well. Currently, it seems that the whole company is less than the cost it would be to open all their units from scratch, which makes them a bargain!