Stericycle (NYSE:SRCL) — mrkt cap $3.95B; Price $42.83; trailing P/E 80
PASS. Stericycle is as close to a monopoly as companies come. It has about 70% market share in the medical waste industry with the rest of the competitive landscape fragmented with mom-and-pop operators. SRCL shares peaked in 2015 when a class action lawsuit arose due to perceived price gouging. This negative goodwill was then compounded by Stericycle diversifying into multiple other industries, leading to classic shareholder value erosion and high debt loads. Stericycle has begun to right the ship and divest non-core divisions while paying down close to $2B in LT debt. Although trading at a high multiple, SRCL has significant latent pricing power. We will continue to watch SRCL and wait for a better entry point.
MarketWise (NAS:MKTW) — mrkt cap $777mm; Price $2.38; trailing P/E 54
PASS. Marketwise is a company founded on bringing institutional research to retail investors. We began looking at this company a month ago—we ran a filter on companies that have gone public in 2020/2021 via SPAC given drastic price declines (most of these names have sold off more than 80% since highs). Most companies in this space are not worth a second look but MKTW was one of the few companies that was cash flowing nicely. They are capitalizing on the self-directed investor trend and collect subscription revenue on 12 research brands that they have either built in-house or acquired. They have close to ~15mm free subscribers and 1mm paid subscribers. We believe this is a growing industry but MKTW has high churn and high marketing spend. The company is undergoing new leadership and we will wait for more stability in strategy before greenlighting for a deeper dive.
Sleep Number (NAS:SNBR) — mrkt cap $422mm; Price $19.04; trailing P/E 12
PASS. Sleep Number is a vertically integrated mattress firm from production to retail. SNBR has been aggressively pursuing growth with high advertising budgets, spending almost as much as Tempur Sealy, a company with 2.5x the revenues of SNBR. SNBR is a solid brand however its ~$470mm revolver debt level gives us pause. During the last three years, SNBR repurchased $700mm worth of stock at an average share price of $100; the share price today is 1/5 of that. Predictably, share repurchases have tapered off while share prices have plummeted. This lack of sound capital allocation coupled with SNBR being in a more fragile position leaves us unable to proceed further.