I Bought A New Turnaround Stock

Summary

In this video, the speaker discusses their recent investment in CVS Group, a UK-based veterinary services provider. The stock has dropped significantly due to factors like a cyberattack and market uncertainties, but the speaker sees potential for a turnaround. With the pet services industry growing, particularly in veterinary care, CVS Group is positioned for long-term growth. The speaker highlights the company's expansion into Australia and compares it to competitors like Pets at Home. Despite short-term challenges, they believe the stock is undervalued and has strong upside potential.

Takeaways

• 😀 The presenter discusses their recent investment in CVS Group, a UK veterinary services company, as part of a turnaround play after a significant stock price drop.
• 😀 CVS Group is down 62% since 2021, which makes it an attractive investment opportunity according to the presenter, despite current challenges in the industry.
• 😀 The investment strategy is based on buying stocks that have faced significant short-term challenges but offer long-term growth potential, similar to a previous successful investment in Watches of Switzerland Group.
• 😀 The pet care industry, particularly veterinary services, saw a boom during the pandemic but has since faced a decline. However, demand for veterinary services is expected to rise again as pets age and require more medical care.
• 😀 The presenter compares CVS Group to competitors like Pets at Home, noting that CVS, which focuses more on veterinary services, is better positioned due to its higher-paid workforce and ability to pass on costs to consumers.
• 😀 CVS Group is expanding into Australia, a large market for veterinary services, which could serve as a significant growth driver, despite past unsuccessful expansions into Ireland and the Netherlands.
• 😀 The UK Competition and Markets Authority (CMA) has launched a market investigation into the pricing of veterinary services, which creates some regulatory uncertainty for CVS, but the presenter believes the company is unlikely to face severe penalties due to its low profit margins.
• 😀 A recent cyberattack on CVS has hurt its financial performance, but the speaker believes the stock is undervalued at its current price, suggesting that the negative news is already priced in.
• 😀 Financial projections for CVS Group show moderate organic revenue growth (5-8%) and potential margin expansion, despite a recent decline in profitability due to inflationary costs and one-time charges.
• 😀 The presenter plans to build a position in CVS Group over time, starting with an initial investment and adding more if the stock price declines further, confident that the stock offers substantial upside potential even with the current risks.

Q & A

What is the primary focus of the video?

The primary focus of the video is on a UK stock investment, specifically CVS Group, which the speaker sees as a turnaround play. The speaker discusses buying this stock after its significant drop in value due to negative news and believes it will improve over the next few years.

Why does the speaker refer to CVS Group as a 'turnaround play'?

CVS Group is referred to as a 'turnaround play' because its stock price has fallen significantly due to negative news, including a cyber attack, but the speaker believes the company has strong growth potential and can recover over time.

What other company does the speaker compare CVS Group to in the video?

The speaker compares CVS Group to Pets at Home, highlighting differences in business models. CVS Group focuses more on veterinary services, while Pets at Home is more of a retailer with a smaller focus on vet services.

What concerns does the speaker have about Pets at Home?

The speaker is concerned about Pets at Home due to the impact of rising minimum wage costs in the UK, which could affect their business. Additionally, the company’s reliance on low-wage workers in a challenging economic environment is seen as a potential disadvantage compared to CVS Group.

What role did the COVID-19 pandemic play in the pet industry?

The pandemic led to a boom in pet ownership as many people stayed at home and sought companionship. This resulted in higher demand for both pets and related services such as vaccinations and veterinary care, benefiting companies like CVS Group and Pets at Home.

How has the financial performance of CVS Group been affected recently?

CVS Group has faced challenges, including a cyber attack and increasing inflationary costs, which impacted their recent financial results. However, the company has still shown moderate revenue growth, and the speaker is optimistic about its potential for recovery.

What is the speaker's outlook on CVS Group's growth prospects?

The speaker believes CVS Group has good growth prospects, especially with its expansion into the Australian market, which has a significant potential size. Despite past setbacks, the speaker is hopeful that CVS will recover and grow in the coming years.

What are the key risks facing CVS Group, according to the speaker?

Key risks facing CVS Group include regulatory investigations into veterinary pricing and potential market saturation in the UK. The speaker also mentions the challenge of debt and previous failed international expansions in Ireland and Holland.

What is the speaker's strategy for investing in CVS Group?

The speaker has started a position in CVS Group but plans to buy more shares if the stock price drops further, hoping to average down their cost per share. The strategy is based on the belief that the stock is undervalued due to excessive fear in the market.

What indicators suggest that CVS Group might be undervalued?

The speaker points to the current low price-to-earnings (P/E) ratio, which is much lower than the company’s historical average. Despite recent challenges, the stock is seen as offering strong upside potential if it can return to its previous profit margins and growth trajectory.