Passing On Booking.com, Duolingo, and Cameco

For the most part, I only like to highlight stocks that meet all of the stringent criteria to earn a "green dot" approval and a spot on our Watch List.

However, I think it can also be constructive, from time-to-time, to briefly discuss some Green Screen stocks that were reviewed and did not make the cut.

These are our "Daniel 5:27" articles: these stocks were weighed in the balances, and found wanting...

Booking.com (BKNG)

I actually got a good distance into looking at Booking.com, a travel booking network that owns Booking.com, Priceline.com, Agoda.com, KAYAK.com, and OpenDoor.com. It is a solid company with a strong network advantage, recurring revenues, robust free cash flows and outstanding returns on capital. My only issue is growth potential. Even framing over COVID, the company has only delivered 6-7% revenue growth annually since 2017. It has lost market share, especially to Airbnb (ABNB), and there is increasing competition from Google (GOOG). There are some good things here, no question, but concerns over growth and quality of moat just keep it out of "green dot" status.

Duolingo (DUOL)

Duolingo is a Green Screen stock that I was excited to take a look at. Even casual users know what it is, having built the premier brand in language learning. It has impressive revenue growth (over 50%), is growing paid subscribers nicely (+60%), and is beginning to generate real free cash flows. A couple problems concern me. The biggest is easily churn - only 10% of people who download the app convert to paid customers, and few use it for more than a year or so. This makes revenues "not really" recurring for any length of time, and opens the firm up to competitors grabbing new or returning learners. Also, Duolingo is a mobile app, reliant on Apple or Google for over 70% of sales and beholden to whatever random App Store rules they decide to push out.

Cameco (CCJ)

Cameco mines and processes uranium for nuclear power plant consumption. It is one of the top 5 miners in the world with about 9% of worldwide output. In a normal environment, a run-of-the mill commodities miner like Cameco would not sniff the Green Screens. But the Ukraine-Russia war has put the kibosh on uranium transportation out of Kazakhstan, a country that produces 42% of global supply. This has led to a 40%+ increase in spot uranium prices over the past year - a boon for miners like Cameco. However, the Kazakhstan problems are expected to be resolved soon, and uranium miners are starting up recently shuttered mines, which will increase supply and bring prices down. As the current situation won't be sustainable in the long term, Cameco is an easy "pass".