Several Stock Deletions And Rejections To Cover

Today I want to briefly outline some findings on 2 Green Screen stocks that don’t make the cut for investment consideration, and why I’m removing Shockwave Medical (SWAV) from the Watch List.

Removing Shockwave From The Watch List

Shockwave Medical is an interesting stock, its novel IVL therapy for breaking up plaque in arteries a revolutionary new cardiovascular option. The stock has always traded right around our fair value price, never offering the kind of margin-of-safety we were looking for before buying.

In recent weeks, however, medical giant Johnson & Johnson (JNJ) decided the firm was worth considerably more to them, agreeing to a $13 billion deal valuing Shockwave at $335 per share. This was over 50% higher than our $215 fair value estimate! Current shareholders are getting a nice exit, but there is no reason for us to keep it on watch any longer. It gets removed from the Watch List today.

Rejecting MINISO (MNSO)

In the spirit of "paring down" the Green Screen options, the first we’re going to take a pass on is MINISO Group. MINISO is a low-cost retailer, primarily in China, that sells things like home decor, electronics, toys, cosmetics, snacks, and so forth. The best comp I can think of in the U.S. would probably be Big Lots, or Five Below.

There are all kinds of shady things about this company. The purported founder’s very existence has been disputed by Asian media. The firm violated United Nations resolutions by opening a location in North Korea. North American expansion failed miserably with the bankruptcy of MINISO Canada in 2018. And the company apologized in 2022 for trying to position itself as a Japanese brand, admitting and stating that it was "Chinese through and through" and changed its katakana logo (which used incorrect Japanese characters!).

My aversion to Chinese stocks is no secret, and MINISO is a particularly suspect one. Stay away from it.

Rejecting Roblox (RBLX)

Finally we come to Roblox, a gaming or "metaverse" platform that allows users (mostly teen and pre-teen kids) to develop and play different games within Roblox’s "walled garden". Notably, all transactions within the platform are done in "Robux", which has skewed cash-in / cash-out transaction rates, and are the only earned currency for game creators.

The stock actually trades at an attractive valuation, in my opinion. But the business itself I’m not a huge fan of. For one, the bulk of its user demographic is age 13 or under, not exactly a group flush with cash. It can also be a fickle bunch that will easily jump onto the next gaming fad, leaving Roblox behind. Second, Roblox hasn’t really shown the ability to generate sustainably high cash flow margins, even as gross margins have stayed strong. They are spending to expand the platform - which is fine - I’m just not convinced the future growth is going to be there. A pandemic stock with questionable prospects for profitable long-term growth, I’m passing on Roblox.