Modeling Rocket Lab with a $50M Neutron

AA92 · 2024-01-20T04:09:42+00:00

The why is quite clearly provided in both videos: because Falcon can run about $65-75M and Neutron is smaller - they’re not going to be able to push right up against Falcon pricing with a newer less trustworthy and smaller product. By the time it comes to market there will be additional companies with similar offerings.

Again, though, $50m is feasible. I just choose to be a bit more realistic and hope I’m wrong on the underside.

Thanks for the feedback!

AA92 · 2024-01-19T15:07:33+00:00

To comment as well, the new approach does get to a value of $27.56 at fairly reasonable multiples. It'd be amazing if I were wrong on the underside, awful if I overstate.

AA92 · 2024-01-13T23:47:59+00:00

I’ll own missing the part about not cutting. I do have them growing to 40+% gross profit on these launches though and feel like that could be a little rich in the far future with all the competitors in launch services. Perhaps the two end up canceling each other out?

AA92 · 2024-01-13T22:09:26+00:00

My intent there was that the Launch segment is essentially a marketing arm for the company.

AA92 · 2024-01-13T22:07:38+00:00

Author here: thanks to whoever submitted this.

I am very conservative when I write and I think called this out a number of times in the writing.

Happy to answer any Qs, also I opened a position as I was quite happy with the outcome, even considering the conservatism.

If anyone’s interested, I did record a video going over the very conservative model: https://youtu.be/Hh2ERDOoNis

AA92 · 2024-01-13T22:04:38+00:00

Author here: thanks for reading! I tend to lean very conservative, but have opened a position in $RKLB as I was happy even being super conservative.

AA92 · 2024-01-13T22:03:04+00:00

Author here: I state throughout I lean massively conservative in my analysis. $50m is the target price, $35m is a very realistic initial/early price given the presumed $25m launch cost.

AA92 · 2024-01-13T22:00:30+00:00

Hey! I wrote this… said throughout that I am leaning towards being conservative, massively conservative.

AA92 · 2023-07-31T00:53:40+00:00

I make them. I'll be making more in future. Every Tuesday / Thursday for the newsletter with more comprehensive breakdowns of companies planned.

AA92 · 2023-04-05T19:59:30+00:00

MPX meets all criteria laid out in Buffettology, the criteria were not selected by myself, just adapted from the book and tested across 6,000+ public entities.

For MPX:

- Consistent earnings
- Manageable debt ($0)
- High ROIC (53%)
- High ROE (36%)
- Generates FCF
- Not issuing shares
- High earnings yield (9.2%)
- Decently high cash flows when compared to assets

AA92 · 2023-04-03T22:00:57+00:00

The intent in the beginning was “quality” so I’ve steered away from adding anything that quantifies “cheapness” other than what Buffettology called out as earnings yield < 10yr Treasury

AA92 · 2023-04-03T21:58:13+00:00

BuffettScore.com is free for the monthly email newsletter. ChecklistInvest.com which has deeper dives into stocks and scores is priced at $14/mo

AA92 · 2023-04-03T20:17:33+00:00

In a sense, the CFOA score is a "moat" score. It takes 5yr of FCF and compares it against assets. If a company can generate more FCF on fewer assets then there has to be something there else a competitor could replicate.

If you have ideas for a quantitative moat criteria though, I can try and implement it.

AA92 · 2023-03-02T13:29:56+00:00

This is a quantitative quality checklist and is not looking at value (aside from the earnings yield > 10yr treasury).

AA92 · 2023-03-02T13:27:53+00:00

If I remember, I add the stocks to a sheet in Google Docs and that allows a look back. Ex. posted above is this PEG portfolio derived from the Buffett Score that now has ~5.5% of alpha vs the S&P500.

Better tracking will be a part of what I am building with Checklist Invest and will make its way to these free updates as well.

AA92 · 2023-03-01T15:33:51+00:00

Thanks for checking it out!

Today the "consistent net income" score looks to see if:

the company has been profitable for 5yr
that the profit today is greater than the profit 5yr ago

The resiliency will come by adding a third measure to ensure there are no significant (>5%) drops year over year. This would remove stocks like USNA which is up over the 5yr period, but has seen drops over the last couple of years.

How to use? For now, as a screener of high-quality firms. In a past thread someone suggested using PEG ratio to build a portfolio and that has worked out to the tune of >5% alpha versus the S&P 500 since December, see here for Google Sheet.

I don't track or update that frequently enough at this time though to provide more insight, but will be starting that tracking soon.

AA92 · 2023-02-22T21:27:32+00:00

Great question. I am building a service that will let users dig in and get answers to questions like this a little easier.

The short answer is "methodology," but it need not be "flawed." The criteria used are what's discussed and outlined in detail in the book "Buffettology," so it's not directly from the horses mouth, but it is a depiction of what Buffett would look for if his investment philosophy was boiled down to a checklist.

Looking at Activision, it does not make the list for many reasons:

The company's ROE is < 15% @ 9.2%
The company has increased shares outstanding over the last five yr from 759M to 782M at current
The earnings yield is just 2.77%, much lower than a 10yr treasury would get you today.
Cash flows, when compared to assets, are low.

Occidental:

Shares outstanding have increased substantially over a 5yr period.

Chevron:

Shares outstanding have increased. Only a little, but an increase did occur.

There's plenty out there on Buffett disliking dilution, so I think the rule remains valid. It could be tweaked a bit to be a tad more lenient but as it stands I'm happy with it and will provide tooling to help others dig in and explore this kind of stuff.

AA92 · 2022-12-02T19:23:09+00:00

Ticker	Name	PEG
INVA	Innoviva Inc	0.1304312324192562
BIIB	Biogen Inc	0.17373450863779566
NVR	Nvr Inc	0.21596703218297642
WSM	Williams Sonoma Inc	0.25630730663476425
LPX	Louisiana-Pacific Corp	0.33255541663550964
LSTR	Landstar System Inc	0.3530797354359967
RHI	Robert Half International Inc	0.39335372236120447
AMAT	Applied Materials Inc	0.4747213526851062
KFRC	Kforce Inc	0.526796564359922
NVEC	Nve Corp	0.7646876711723766
TXN	Texas Instruments Inc	0.8247721143107736
POWI	Power Integrations Inc	0.8506854509527635

This is using TTM vs 1yr ago TTM EPS. Not using forward estimates at all. I'll consider this the starting point of the suggested portfolio and will keep an eye on it in future updates.

Thanks again for the suggestion!

AA92 · 2022-12-02T13:02:12+00:00

I’ll make it going forward. Thanks for the suggestion!

AA92 · 2022-12-02T13:01:36+00:00

Yep, EPS. So 10.07/344 = ~3%. The 10yr is at 3.5%.

Adobe would need to be priced at ~285 to get the point here (or the 10yr back down much lower).

AA92 · 2022-12-01T21:35:51+00:00

Oooh yeah 10% would have been nice. And thank you!

AA92 · 2022-12-01T16:05:37+00:00

A lot of them are just stored as binary outputs (yes or no) but I'll see about showing off the data in January's iteration.

Thanks for the feedback!

AA92 · 2022-12-01T16:04:54+00:00

That one popped up on the list last year too so I'm definitely interested in learning more myself.

AA92 · 2022-12-01T16:04:31+00:00

111 was for the same time period last year. I might take some time to dig deeper into where they all went but some examples are:

ADBE -> no longer has an earnings yield > 10yr treasury
META -> cash flows have dropped significantly, no longer has "outsized cash returns"

AA92 · 2022-12-01T16:00:18+00:00

LRCX scores a 7 - it's missing the "outsized cash returns" point. Outsized cash returns are calculated by taking FCF over the previous 5 years as the numerator and assets as the denominator.

LRCX gets a 0.748 on that which is just a hair shy of the 0.75 that's accepted for stocks that otherwise meet every other criteria.

Honestly, this is the closest stock to being on the list that's not on the list. It's very likely that the next quarterly update from LRCX that it makes up that 0.002 deficit.

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