Thursday's trading day sure was fun, with the S&P 500 dropping 1.85% for the second -1%+ day this week. What's more, smaller names did what you would typically expect, falling harder, as the Russell 2000 (down 2.79%) and Russell Microcap (down 3.11%) had awful days.
This came against the backdrop of a Federal Reserve admitting earlier this week the world's worst-kept secret: inflation is not under control, and additional rate hikes beyond what was previously expected may be on the horizon. Not to mention everything happening with SVB Financial (SIVB) and the banks.
But there was much more behind Thursday's jitters, at least in my opinion. President Biden's proposed near-$7 trillion budget, chock full of tax hikes including a corporate tax rate hike from 21% to 28%, sent a confusing signal to the markets. While there is virtually no chance that this budget will pass, it's the mixed signals (and or lack of economic common sense) that has markets on edge.
We just saw the Fed Chair acknowledge that inflation has not been tamed, and still the administration proposes a corporate tax rate hike, which if enacted, would not hit corporations, but rather the already struggling consumer. Perhaps the proposal was meant to check a box (stick it to the corporations) but it demonstrates more of the lunacy that got us into this inflationary environment in the first place.
Meanwhile, in earnings land, two of the eight members of my Triple Net Active Portfolio reported Thursday.
Specialty retailer Fossil Group (FOSL) , which had rallied since being dropped from the S&P SmallCap 600 Index in September reported fourth-quarter revenue of $499.1 million, down 17% year over year and a loss of 14 cents per share. The shares fell nearly 11% in reaction.
FOSL ended the quarter with $199 million, or $3.83/share in cash and $216 million in debt, for a total enterprise value (or EV which is market cap plus debt less cash) of just $224 million. The shares now trade at just 1.73x net current asset value (NCAV), and 0.55 X tangible book value. There is currently no analyst coverage. FOSL is down 17% year-to-date.
Smith & Wesson Brands (SWBI) , reported third-quarter earnings per share of 25 cents (2 cents ahead of expectations) and revenue of $129 million ($3.7 million better than expected). The shares fell 1.8%, and now trade at 3.07x NCAV. Year-to-date, SWBI is up about 17%.
Next year's "consensus" estimates (with just one analyst weighing in) for SWBI are calling for earnings per share of 94 cents, putting the forward price earnings ratio at 11.
Counting Thursday's action, and despite FSOL's pullback, the Triple Net Active Portfolio is up about 10% since inception.
