A look at the latest earnings reports from Nvidia and Five Below; Updates on Cracker Barrel, Joby Aviation, and FEMSA
1) I feel like a broken record commenting on Nvidia's (NVDA) latest earnings report...
After the market close yesterday, the chipmaker reported another stunning quarter.
Revenue soared 6% from the previous quarter and 56% year over year ("YOY"). And adjusted earnings per share ("EPS") jumped 8% from the previous quarter and 53% YOY.
The company also gave strong guidance. Revenue is expected to grow around 16% (plus or minus 2%) in the next quarter and 54% YOY.
Once again, these are incredible numbers.
But as this Wall Street Journal article notes, investors thought the revenue outlook was "lukewarm," which sent its share price lower:
After several blockbuster quarters, the revenue projection was seen as underwhelming and stoked worries that growth in demand for AI chips might be hitting a plateau.
Nvidia shares fell nearly 3% in aftermarket trading, likely because of the lukewarm revenue outlook and the narrow miss of revenue forecasts for the company's data-center business. It was the second consecutive quarterly miss for the segment, which accounts for 89% of the company's sales.
A related WSJ Heard on the Street article notes how Nvidia's pricing power could be "dented" as rivals take market share:
Competition continues to grow from rivals, such as Advanced Micro Devices; chips designed in-house by major customers, such as Amazon and Google; and even a wave of startups that see an opportunity in Nvidia's margins. The cost of doing business in a global trade war could keep rising as well, especially if Nvidia tries to get approval to sell a version of its popular Blackwell chips in China.
I think analysts, investors, and the media are nitpicking. This was an incredible quarter, guidance was strong, and the company announced an additional $60 billion in share repurchases.
Analysts expect Nvidia to earn $4.45 per share for its current fiscal year. So with the stock around $181 this morning, that means it's trading at about 40 times earnings.
That's a rich valuation, especially given the uncertainty about sales in China. Plus, YOY comparisons are going to keep getting more difficult going forward after such explosive growth.
But it's not a crazy valuation for a dominant, profitable business that's growing this quickly. I still think Nvidia is a great company that may continue to do very well despite these slight hiccups.
To repeat what I wrote after the company's earnings report in February, this is the kind of stock I like to pound the table on when it's down at least 50% (if not 75%). So I wouldn't go out and buy Nvidia today.
But in that same e-mail, I also noted that if I owned Nvidia, I wouldn't sell. (On September 5, I detailed how to handle this sort of "high-class problem" with a stock like NVDA.)
As I've said many times before, you must let your winners run!
2) Discount retailer Five Below (FIVE) also reported strong earnings after the close yesterday. As a result, the stock jumped as much as 7% this morning.
Revenue rose 24% YOY, driven by an exceptional same-store sales increase of more than 12%. Adjusted EPS was $0.81, up 50% and crushing estimates of $0.63.
The company also boosted revenue and earnings guidance for the next quarter and fiscal year.
The stock has been on an absolute tear since April 4. Back then, I highlighted FIVE as a great way to play a possible recovery from the tariff meltdown:
Five Below crashed 27.8% yesterday to close at $58.83 – not just a 52-week low, but more than a seven-year low, as you can see in this 10-year stock chart:
Investors are concerned that Five Below will be particularly affected by the new tariffs because it sources most of its products from Asia, and its entire business model depends on ultra-low prices.
I concluded:
This is still a good company, and its stock would be a huge beneficiary if Trump eased the tariffs. And I'm not sure it makes a lot of sense that Five Below gets clobbered while Walmart (WMT) (down 2.8% yesterday) and Costco Wholesale (COST) (up 0.2% yesterday) are mostly unscathed.
Sure enough, FIVE is up more than 150% since then.
The company is guiding for adjusted earnings to be between $4.76 and $5.16 this year, so we can use $5 as a midpoint. With the stock around $150 today, that means it's trading at 30 times this year's earnings.
At that multiple, the stock is a "hold" for me.
3) Yesterday, I wrote about the buzz surrounding restaurant chain Cracker Barrel's logo change and its recent financials.
As this WSJ story details, activist investor Sardar Biglari is taking advantage of the negative press:
Biglari, chief executive of Steak 'n Shake and owner of an investment firm that is a shareholder in Cracker Barrel, has spent years swiping at the country-themed restaurant chain, waging unsuccessful proxy fights over more than a decade...
When President Trump weighed in Tuesday, writing that Cracker Barrel should return to the old logo and take advantage of the free publicity, Steak 'n Shake piled on. "The CEO needs to hear "You're Fired" from her board," it posted on X.
[Biglari] has helped fuel social-media outrage against Cracker Barrel and its CEO, Julie Felss Masino, on a range of issues, including the chain's restaurant remodels.
Biglari's activism doesn't change my view that Cracker Barrel's stock is an "easy pass."
4) Turning to Joby Aviation (JOBY), another company I've written about most recently on August 5 and August 7...
The electric-aircraft maker was mentioned in a bearish report on Archer Aviation (ACHR), a direct competitor. It was published yesterday by activist short seller Grizzly Research.
The firm criticizes Archer's flawed aircraft, little to no production activity at facilities, and inflated order book. But to my surprise, it wrote favorably about Joby:
Joby is making tangible and impressive progress on all fronts...
It is credible that Joby is ready for TIA [Type Inspection Authorization] in the next 6-12 months, given they are self-reporting 70% completion of Stage 4 testing...
[Joby's prototypes have] a very conservative two-year lead over Archer... probably much larger...
The U.S. government is launching an Electric Vertical Take-off and Landing (eVTOL) Integration Pilot Program (eIPP) [which] will become an opportunity for Joby to pull ahead of the pack even more than it already is. The program will effectively become a stage for Joby to solidify its market dominance for several key reasons.
Two years ago, I spent a half-day with both Joby and Archer. And I was much more impressed with Joby.
Grizzly's report confirms my bullishness on Joby's stock, which I continue to believe is a promising speculation.
5) On Monday, I took a "first look" at Mexican convenience-store operator Fomento Económico Mexicano (FMX), also known as "FEMSA." And on Tuesday, I did a deeper dive on the company.
Rob F., my longtime investor friend who put the stock on my radar screen, sent me some additional insights:
FEMSA used to own Dos Equis beer, which it sold to Heineken for stock. Some of the large dividends FEMSA paid in recent years were funded by selling down this sizable stake.
About a year ago, the two senior execs resigned. I presume they were forced out, given their overlapping departure. That's a concern. What happened? Is the chairman a megalomaniac, or was there a valid purpose in forcing managerial exits? Or did they quit because they couldn't abide the chairman?
The decrease in revenues at OXXO in Mexico is concerning. Even with various headwinds, was there a mispricing of products?
The president of Mexico built her career on "progressive" anti-business rhetoric. How serious is she? Is the Mexican populace heading in the same direction? If so, could corporate taxes rise?
All that said, FEMSA has strong businesses. The growth in Brazil holds promise, and I'm enthused by their foray into the U.S. Southwest – a natural extension of their brand recognition – as it offers opportunities for considerable expansion.
Thank you, Rob! I share your view that this is a very interesting company and stock.
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.