Welcome back everyone. Today on the Joseph Carlson Show, we're going to be reviewing 6 different companies that are very important to the market. These are companies that were once considered compounding machines, the best of the best, the high growth companies that every investor wanted to own. But each of them has run into a series of challenges. They've stumbled and the stock
price has come crashing down. So they are fallen compounding machines, formerly great companies, but now it's up for debate. Now the market's trying to figure out whether or not these companies are still great. We're talking about Lululemon, which is down 53% year to date. Investors seemingly have given up on this company, but as it deserved, we have Celsius, the healthy energy drink company, down 36% year to date. We have Ulta, the beauty
company, down 34% year to date. Nike, down 30% year to date after falling down even last year. Where is the bottom for Nike? We have Airbnb, which reported its recent quarter. It was disappointing, and the stock is down 15%. This was a incredibly fast grower. And then of course, we have Disney. Disney's not yet recovered to its 2021 highs. The stock is down 5%. What does the future look like for Disney?
We'll be looking over each of these 6 fallen compounders, looking at analysis on the companies and determining whether or not they're a buy. Now, the first one we're going to be taking a look at is Lululemon, down 53% year to date. It's hard to believe Lululemon seems like such a great company. They can charge so much money for their clothing. Everyone's addicted to the yoga pants and the at the leisure type of clothing.
So you think this company would be having a great year as consumers have been mostly strong with a lot of other businesses. But it's down over and over again all throughout the year, trailing down 53% over the past one year. It's down 34 percent or sorry, 38% over the past five years. It's now only up 34%. So it's underperformed the S&P 500 for A5 year basis. What happened to Lululemon to have this type of performance? Well, according to a BMO senior analyst, Lululemon is simply
becoming not cool. So, so I think that's the question. I think you and I have talked about in the past, we've talked about on the show this notion that brands hit ubiquity levels, brands become not cool at a certain level. And that level, my team has done phenomenal work on this. So thank you to them. But what we have found is $3 billion in North America is that level. And so companies go above it and then they come crashing back down.
And so Lulu right now at over 6 billion looks much higher. Now guys going to come at me and say, well, where's Nike fit on that? And the answer is there are exceptions. And so we need to figure out, is this an exception what you look for is whether the sales are eroding, the quality of sales are eroding, do they have to discount to get those revenues last quarter?
They did. So. According to this analyst, once an apparel company goes from $3 billion to above $3 billion in sales in the US, it goes from being cool to not cool. It becomes too ubiquitous. Basically, everyone's getting that thing, so the trending thing or the cool factor is diminished. It's reasonable to assume that once something becomes too popular or ubiquitous, it loses some of its uniqueness or appeal
to some degree. But at the same time, I see many counter examples to this, not just Nike, which of course he mentions Nike as an exception, a convenient exception, but Nike has been a staggering exception. The Nike Air Force One shoes are the most commonly sold shoes in the US and the world. They are so common that every teenager has a pair of them. Every teenager wants them. That shows the exact opposite of
the point he's trying to make. It seems that the more people have these shoes, the more people want these shoes. You also have the example of of you than other companies like Crocs. Crocs hit $4 billion in sales. That's mostly in the United States. That didn't seem to stop them from becoming popular. It seems like more and more people that have the shoes make more and more people want the shoes.
So I'm not entirely convinced that the reason that Lululemon is going down so much is because it's becoming too popular. So that's one theory of why Lululemon is doing poorly, but he also points to another reason. It's 3 billion of sales at retail. So what that means? So these companies report their revenues, but Ralph is a wholesale business. And so if you strip out the business and you add that up, they're actually it's, it looks different.
And so that's really important because I don't really care about what revenues a business recognizes. I care about what level of consumer spends. And so a lot of these businesses, you watch Ralph, you watch Coach, you watch Michael Kors, you watch these businesses go higher with wholesale, which helps. Lulu doesn't have wholesale to any real extent, but then they actually did come back down. And so part of what Ralph did so well is they appreciate this idea that you can sell less and
charge more and make more money. You can raise your price, and we learned this in Econ 101 price elasticity. I can make a lot more money by being more exclusive. We all want to be inclusive. We want to sell to everyone, but the reality is you don't. So he's also concerned that the quality of sales from Lululemon is starting to decline as they discount their products and give more deals. And I believe this is more concerning thing to point to.
Lululemon is facing greater and greater competition. If we were to divide this company into three different phases, we have phase one right here from 2005 to 2010, the company during phase one faced almost no competition. The stuff they were making was novel. These good looking yoga pants that were seamless, that took very complex sewing machines to even create. They were very expensive and only a niche consumer even knew
about them. During this second phase of growth during the 2010 to 2020, the company was not quite as novel. It was picking up steam, but there still isn't any big competitor to Lululemon. There is nobody directly ripping off everything they did. So this is a time period where they face some competition, but it still was not intense. Then we enter into the third phase of this company, 2020 to current day. Lululemon's competition has increased dramatically over this
time period. Now competitors are competing fiercely. There are so many brands you can list off that are almost exact dulicates or better yet, slight variations that are some ways better or worse. But regardless, Lululemon is no longer in phase one or two where they have organic growth without facing dramatic competition. When you have dramatic competition, a few things typically happen. The first of which is pricing power. Dramatic competition leads to
declines in pricing power. So while Lululemon was able to raise prices during phase one and phase two, I think it's going to be much more difficult for them to raise prices during phase three facing all these competitors. And in fact, Lululemon might find themselves in that circle of continually lowering prices. There are now some analysts that believe Lululemon's actually going to have its first down year in its history. Look, it's both.
It's, it's very simple. The street thinks that Lululemon's going to grow double digits into perpetuity. We think that Lululemon's U.S. business is going to turn negative next year for the first time ever. And why is that? Well #1 The athletic leisure category used to grow at a mid to high single digit rate before COVID, grew to a double digit rate post COVID. Now after COVID, you have that COVID hangover, if you will, and that's creating a slowing in the growth rate for the backdrop of
the industry. In addition, you have companies like as I said earlier, Aloe and Viori, you're seeing it all over the place in terms of big cities, they're gaining market share, particularly Aloe in a big fast manner. So that's creating an additional headwind. And I think what the street is missing is they're not projecting U.S. sales to go negative next year. We are that's why we're, we're massively below, below the
street. And when you look at our numbers, so the the total growth rate for the company by the consensus is over 11% growth for 2025. We just think that doesn't happen. If Lululemon is priced for 11% growth and it actually turns negative next year, the stock will be re rated even lower. And This is why it's important to know that just because a stock is down in price doesn't necessarily mean that it's a
good buy or a good deal. Lululemon is down 52% and there's still a lot of risks in this company. I agree with the analysts that there is a risk of the company turning negative next year. The growth rate is decelerating. If we get negative growth in 2025, that could be trouble for the company. When I look at Lululemon, it's still a stock that trades at 16 Ford PE ratio.
Given the risks of an apparel brand facing new competitors with slowing growth, I would need a price tag much lower than this one. I would want to buy this company around A10 Ford PE ratio. That seems super cheap, but if it never gets there, that's OK. This one for me is a pass at this price point. It's just too risky now. Next up we have Ulta Beauty. This is another company that was
once a compounding machine. It was a very dependable company with fast growing free cash flow and at a healthy valuation. But the stock is now down 34% year to date. So it's getting crushed this year. It's one of the worst performers. And we want to take a look why. Now when we look at the quarterly trailing 12 months of this company, we can see the gradual revenue growth over time.
It looks really good, especially because this part right here is because they had to close their stores during COVID and it recovered rapidly from that point. But you're starting to see a similar trend here. The growth seems to be decelerating like it did with Lululemon. And I believe that Ulta is running into very similar problems. Altas facing increased competition in the same manner as Lululemon. Most of that competition seems to be coming from their largest competitor, Sephora.
The main thing is, as you you said it, that the competition is really heating up. We've seen Sephora really ramp up its store count with its partnership with Kohl's and a much faster rate than Ulta's been ramping up its partnership with Target. We've also seen the rise of Amazon and digital players capturing share. And it's really LED Ulta to pull on a number of traffic drivers such as heavier promotions and marketing spend to get those
consumers back in the stores. And what we're seeing and what we're we're fearful of it's, it's going to become a much bigger margin, margin hit than than we originally. So Ulta falls into the same challenges as Lululemon, rising competition, pricing power going down. They're having to give out discounts and promotions and deals to get more customers, which of course, in turn causes their margins to go down. And no investor likes seeing their businesses margins go down.
And even though this one seems like it's at a deal, even though it seems like it's a high quality company at a discount, I'm still not buying this stock. And that is because at the end of the day, it is a retailer and I don't like investing in retailers. There's only two companies that you can consider a retailer that I currently have a position in. One of them is Amazon, which is obviously quite a bit different than a normal retailer with a massive AWS business with a
massive advertising business. And then there's also Costco. Now some of you might say, Joseph, that's hypocritical. Why do you say you don't invest in retailers like Ulta, but here you are investing in Costco? Costco is truly unique in retailers and in fact, it's so unique that I don't consider any other physical retailer to be anywhere close to Costco. There's some that are somewhat close, like BJ Wholesale or Sam's Club, but Costco is by far the most unique retailer.
Not a specifically because of their subscription model. It's a membership model, that's what they call it, but it's truly a subscription model, just like a software company, SAS selling software as a service like Intuit or like Adobe. Costco has that for retail. Now that's something truly unique. Not many companies can pull this off because not many companies have the benefit of the customer loyalty and offering that Costco has.
So they have this big wide Moat where they can offer something that no other retailer can offer. The shopping experience is not comparable to other companies. And then they wrap that into a membership model that further supports their business. When I look at this on a trailing 12 month basis, the membership model has generated nearly $5 billion of revenue and this is extremely high margin revenue. It's basically all profit. They don't have to do any type of promotions to advertise this.
You don't really see commercials on TV. They went over their customer organically and at the same time they can raise prices on this just like they announced couple weeks ago, they're raising prices by 8%. Now this is a small price raise, but again, this is very high margin. All of this will basically hit the bottom line. So Costco's a company that the reason that I hold it is because it's like a software style company with a subscription model wrapped into a retailer.
When I look at companies like Ulta, it seems like it's at a great valuation. It seems like it has good prospects, but it's also facing increased competition from Sephora. It doesn't have any type of subscription model. It has a customer loyalty program, but that's not the same as a subscription model. So even though Ulta is trading down, I see more continued struggles with margins, revenue growth slowing due to competition, and I think the cash flows may stay flatter for
longer. So even though this one seems cheap, it's another one that I'm not going to be jumping in at this point. Now Next up, we have Disney. This company seems to be making a bit of a comeback, but it's still struggling this year. When we look at Disney, it's down 5% year to date. At one point, it was trading at 1:22 and it's traded all the way back to $86 per share.
So we were getting the recovery. It seemed like things are back on track, but then the most recent quarters, Disney's traded down. Now I have to say, when I look at Disney, I've done a lot of analysis on this company and I continue to believe that overall, Netflix is a better bet. And that is where I've had my money. At the start of this year, I even sold a little bit of Apple to buy more Netflix. This is a massive position of mine.
It's continued to grow and I think that Netflix will continue to be the streaming leader. It's a more simple company, more predictable, and it's up 35% year to date. But Disney's one that I've never really counted out. It's not one that I've ever been bearish on. It's one that I continue to look at because I think there's a lot of potential here and there's a couple things that are moving in the right direction for Disney. First of all, the box office
hits. Deadpool and Wolverine crossed $1 billion at the global box office. This movie is a mega success. It's the most profitable rated R movie ever. That's really incredible from Disney. Now. They've had a bunch of flops leading up to this, but now they're seeing the hits. You have Inside Out Two and you have Deadpool and Wolverine and this one's still going. It's still making money. It'll probably make a couple $100 million more in the box office.
Then they'll put it on streaming and make even more money and streaming revenue over time. This is what we want to see from Disney. Fun movies universally love that make fun of itself. It's self aware. They make fun of Fox and Marvel in it. We see this is a mega success. It seems like the creators are back on track here now. Another thing that Disney's planning on doing is further investing in their parks.
In the Anaheim park, they're making a Monsters Incorporated theme at Disney that seems like a really fun addition to the park. It'll attract new visitors and Hollywood Studios, complete with Disney's first suspended roller coaster. So brand new roller coaster type that makes them more competitive with the faster, more extreme roller coasters that you see at Universal. Disney mostly has more mundane smaller rides for little kids, but a suspended roller coaster seemingly would be more
exhilarating. So that's another thing they're adding to make the park more dynamic. And these are big new investments in their parks, the scope of which are above 10s of billions of dollars. And this is what Disney should be doing, investing in things that they know they're going to get a good ROI. Investing and expanding their parks is a guaranteed money maker. Even though there's some short term cyclicality and demand, there's some seasonality.
The parks are money printers. So I like seeing Disney spend more money investing in their parks. The other thing that I like seeing for Disney is the growth in their streaming subscribers. Now this shows all their different digital media properties, but if we cross out Disney Hotstar, which is like the cheaper version of it and Hulu, you can see Disney domestic and international. This is growing 12% year over year. That's a lot of subscriber growth.
So they're still growing their subscribers for their core streaming service. And then not only that, they're growing the amount that customers are paying while growing the number of customers. So you're seeing growth in subscribers and the average revenue per subscriber, both of these metrics moving up at the same time speaks really well for Disney Plus. And they just raised prices
again. They're going to make more money as I think most people be very reluctant to cancel their Disney Plus. Now when we look at the revenue by segment of the company, up until Q2 of 2023, they broke it down from media and entertainment into parks. But now we have these three different categories. Experiences is now the parks. You have sports, which of course is ESPN and then you have the entertainment, which is all the streaming services. Now the parks is mostly
flattish, but that's still good. That's high income, a money generator for the company. You have sports, which is growing a little bit year over year as they're growing their ESPN and you have entertainment, which is a portion that I'm the most excited about. This is their box office, it's their streaming services. And as this portion grows, the predictability of Disney's earnings gets better and better. I like what I see from Disney. Now. We also see the free cash flow coming back.
On a trailing 12 month basis. They've made seven $96 billion in free cash flow, so they're now again highly profitable with their free cash flow, and they're projecting that this will steadily go up over time as they build their streaming service. With the stock trading back down over the past couple of months to $86 per share, I think Disney has crept back in to a buy. I see positive catalyst as streaming grows and becomes profitable.
The parks are flat and that's the part where people are selling the stock. But I believe that's temporary. Disney will continue to grow the parks experience over time. There's not going to be other companies that build parks like Disney. Disney does. I think at $85 per share, Disney's a buy. Now moving on, we get to Airbnb, another compounding machine that has fallen this year. Airbnb is down 15% year today, especially after their most recent earnings.
They basically said that things are going to slow down a little bit. We don't know how much, but they're just going to slow down. That spooked investors, so they head for the exits. The biggest problem I have with Airbnb is a couple things. One of them is that the company is not that diverse. They have one way of making money and that is by short term rentals. Now the CEO of the company is moving into different
categories. He's probably going to do long term rentals, maybe hotels, maybe more of a management thing, We don't know. But he said that every year they're going to add more and more different revenue items to Airbnb. So that's exciting for Airbnb investors that takes a long time to build out and even longer to gain customers. And when we're looking at this, I'm comparing it to booking holdings.
Airbnb currently trades at a 27 Ford PE ratio while Booking the company I do invest in trades at a 19, so bookings at a much cheaper valuation even though they're growing around the same rate. Booking grew at 7% revenue last quarter and Airbnb grew around 10%. And This is why I didn't buy Airbnb at this point. So even after this 15% decline year to date, I'm still not buying Airbnb to buy this company.
I'd be looking at a price point around a 24 PE ratio, so it would still have to come down in price quite a bit now Next up we have another fast growing company. Very exciting one that was supposed to be monster two point O that is Celsius, the healthy energy drink company. Now we look at this company and it's traded down 35% year to date. Over the past five years, it's
up to 1600%. Celsius growth and dominance has been incredible over the past couple of years, but I'm fearful that the investors buying in now have missed the window of this incredible growth. It's true that the revenue has grown dramatically since 2020, but remember, when you're buying a stock, you're not buying the previous revenue, you're buying the future revenue. And the revenue is slowing.
It's decelerating. My issue with Celsius is I still believe it's victim to the caffeine bubble. This is a call I made early this year where I said there's so many companies like McDonald's and Starbucks and Dutch Bros and you name it, getting into highly caffeinated beverages, making
energy drinks. You have Monster Energy and Celsius and you have a bunch of other brands doing the same thing and eventually that level of competition is going to catch up. So you see the common theme here, Competition catching up to these fast growing companies lowers their pricing power. When pricing power is lowered and they don't have that organic growth, eventually the growth slows down and if the company is not priced for slowing growth,
the stock price will plummet. So with Celsius, even though the company's down 3540% year to date, I would not be buying this company. I still think it's incredibly risky. It's still trading at a 43 Ford PE ratio. This company has a long ways to drop even from here if the growth continues to slow, which I think there's a good chance it will now finally we get to the last one, Nike, which is currently down 30% year to date and Nike's had a very difficult time.
If we look at the stock over the past five years, it's literally gone nowhere. It's down 11% on A5 year basis. I believe the problem with Nike is simply that the company is too expensive, and it has been way too expensive for a very long time. Investors got used to seeing this company at a 40 or 50 PE ratio, and they assumed since the company traded at a 40 or 50 PE ratio last year, it'll do the
same this year. But that doesn't always hold, and we shouldn't use previous PE ratios to justify current PE ratios. Nike now trades at a 24 PE ratio, even after dropping 30%. Even after going nowhere for five years, I still think the company's very expensive. It should trade much lower, 15 to 17 four PE, given the level of competition the company faces now. It's also new with on Brand and Hoka and Lululemon and you name it, competing with different aspects of this company.
Nike now faces more competition than ever. The growth for the company is more difficult than ever and trying to justify this one by how much it's dropped or what PE ratio it used to trade at is not the way to look at this company. So Nike's another one that for me is a pass. And you see some common themes here. When I'm looking at compounding machines, the most difficult thing for these companies is to fend off competition. Competition is always the most difficult part of investing in
stocks. And that's why when I look at compounding machines, the very first, the very top attractive attribute I look at is monopolies. Companies that have a huge market share, dominant moats, they own the industry. This is why I put the majority of my money in companies like S&P Global and Moody's. There's no up and coming competitors to S&P Global and Moody's. There's no companies that can take their market share of credit ratings.
MasterCard and Visa. There's always talks of new payment methods, but MasterCard and Visa continue to own the dominant market share. You look at companies like Intuit, which have over 80% market share of things like TurboTax and QuickBooks. These are the ones that I typically go into because I think they make the most attractive investments. So with My Portfolio, I'll continue to focus on companies that have dominant market share,
brand value and pricing power. And you can measure that by whether or not they're raising or lowering prices. Companies lowering prices is a clear indicator that they're lacking in pricing power. Now that's a review of these companies. I hope you enjoyed it. That's all for now. See you in the next one.