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Benzinga got the chance this week to catch up with one of the most successful entrepreneurs currently working in fintech: Betterment’s CEO Jon Stein.

Stein told us about how his first gig managing a burger stand wasn’t all that different in spirit from running Betterment, a company that manages over $3 billion in assets.

Stein started his career as a grillmaster at a hamburger stand at Harvard, coordinating his team of burger flippers, keeping the books straight and helping customers. 

Here’s what Jon Stein had to say about the experience:

“Many days I think back and you can compare [the burger stand] to the early days of the company. There were days when I was doing management type things, which at that point in your life is really just scheduling and doing some of the books, but [also] a lot of ringing customers up, grilling burgers, and serving. I liked that. I like getting my hands a little dirty and doing lots of different tasks and stepping in other people’s roles.” I love these kinds of stories, because they show that even incredibly successful people are just like anyone else. It’s just that they applied the lessons they learned in their lives, worked harder than the next person, and found their success.

Shares of Lumber Liquidators have more than halved since news that the company would be featured in a negative “60 Minutes” piece was broken on Benzinga Professional. Since then, airwaves have been polluted by noise. The following timeline helps to straighten everything out.

February 25

Shares open lower after missing Q4 earnings expectations. Sales $271.98 million versus $279.95 million, EPS $0.64 versus $0.76.

Benzinga Professional reports Lumber Liquidators will be featured in a negative “60 Minutes” story.

Bloomberg later reports that the DOJ is considering criminal charges.

Piper Jaffray downgrades from Overweight to Neutral and lowers the price target from $80 to $55.

February 26

“60 minutes” confirms it will run a March 1 story that Chinese-made laminate may contain an unhealthy amount of formaldehyde.

Wedbush downgrades from Outperform to Neutral.

Evercore downgrades from Buy to Hold.

March 1

“60 Minutes” story airs. The initial reaction is very negative.

CEO Tom Sullivan says he will investigate if there are unsafe levels of formaldehyde.

March 2

Lumber Liquidators 8k says the company is a leader in safety and an improper testing method was used in the “60 Minutes” story.

Short-seller Whitney Tilson says the company is worth $0. "They uncovered many things I didn't know and I am now even more convinced that this stock is a zero.”

Morgan Stanley downgrades from Overweight to Equal-Weight.

March 3

Janney Capital upgrades from Neutral to Buy.

March 4

Reuters reports Senator Bill Nelson asked three government agencies to investigate Lumber Liquidators.

March 5

Goldman Sachs lowers price target from $60 to $40, maintains a Buy rating.

March 6

Whitney Tilson says he has increased his short position.

March 10

Blackrock increases its stake up about 4 percent to 10.1 percent.

March 11

Hedge fund manager Bob Chapman says he has a long position in Lumber Liquidators.

March 12

Lumber Liquidators cuts fiscal year 2014 guidance from $2.65-$3.00 to $2.38-$2.52.

The company hosts an update conference call. Shares rally as CEO Tom Sullivan reiterates that the testing method used by “60 Minutes” was inappropriate.

March 13

Goldman Sachs downgrades from Buy to Neutral.

Share of Popeyes Louisiana Kitchen have risen 54.3 percent over the past six months versus a 7.4 percent return for the S&P 500. Appreciation has been driven by strong growth in same-store sales, activist interest and consistently strong analyst ratings. The following trailing twelve month and projected 2015 growth figures add some context to the recent jump in price.

With shares at their all-time high, it makes sense to consider the stock if it has exceeded its fair value. To determine if this is the case, a model was constructed to compare the company to its peers in the fast casual and fast food space.

The multiples used are PE, PEG, EV/EBIT, EV/EBITDA and EV/Sales. Metrics up and down the income statement were used to minimize estimation error while still considering intricacies at the bottom of the income statement.

Forward multiples were used to include growth priced into the stock.

The result is an estimated share price of $59.37; this is 2.8 percent below the current share price. This means that if Popeyes is perfectly comparable to other companies in the fast food and fast casual industry, shares have found their fair value.

That is not to say that the stock does not have additional upside.

For one, several catalysts could make the company more valuable than its peers. For example, activist investor Red Mountain Capital has a 5.06 percent stake in Popeyes. The fund has indicated it is in talks with management to boost buybacks, cut costs and other strategic initiatives.

Further, it is hard to fight against momentum.

Shares of Popeyes last traded at $61.41.

Offshore drillers have been some of the hardest hit oil stocks since the commodity sold off more than 60 percent. Although drillers are largely looked at as a bad neighborhood, Ocean Rig is one of the best houses in town.

The stock is down 53 percent over the past several months on an industry wide sell off, as E&P companies cut back on the amount of crude they produce. Simply put, as the price of oil continues to slide, fewer and fewer sources of production are valuable enough to pay for themselves. The following chart shows the steep drop in the number of contracted offshore drillers in North America.

Ocean Rig has one big advantage over many of its competitors in this regard: the fleet is very new. This means that E&P companies are eager to continue contracting Ocean Rig’s fleet, while older rigs owned by other companies are much more likely to be stacked. As proof of that, Ocean Rig’s fleet was fully contracted in 2014, is almost 100 percent contracted for 2015 and is more than 60 percent contracted for 2016.

The high rate of 2015 contracts also helps to avoid the second-largest risk to offshore drillers: falling day rates. As a surplus of rigs builds under weakening demand, day rates (the amount paid to rent offshore rigs per day) have been quickly falling. According to the company’s most recent investor presentation, Ocean Rig only needs to have day rates of $112,000 per day to average $500,000 in 2015. Day rates of $341,000 are needed in 2016 to have a fleet-wide rate of $500,000. These rates compare to daily operating expenses of $187,700.

According to Rig Zone, day rates for Drillships and Semisubs are far above this level.

Lastly, Ocean Rig currently pays an 8.11 percent dividend. If the dividend rate were maintained, this means shares would pay for themselves in a little more than 12 years.

Investors should be aware that Raymond James recently downgraded the stock to underweight.

LeapFrog Enterprises has been whittled down to a less than $300 million market cap over the course of the past year. Although it can be dangerous to try and catch a falling knife, there are a few encouraging signs in the case of LeapFrog.

1. Insider Buying

Insiders own almost 10 percent of outstanding shares and have been aggressively buying for years. The following chart shows the past three months of insider transactions.  

Although the stock has been selling off, it is encouraging to see those with the best understanding of the company are adding to their positions.

2. Acquisition Possibility

At the end of November, Reuters reported that several brand name funds have taken a stake in LeapFrog. Their hope is that the company will be acquired. Mattel and Hasbro are recognized as potential acquirers. With an enterprise value of $166.5 million and profits of almost $50 million in the trailing 12 months, this is a reasonable possibility.

3. Balance Sheet

LeapFrog has an enterprise value lower than its market cap because it has $111 million cash (and equivalents) with zero long-term debt. When considering the following chart, keep in mind that LeapFrog’s equity is worth less than $300 million.

4. Earnings Multiples

The forward EV/EBITDA is four versus the peer group’s 14 and EV/Sales of 0.3 versus 1.1. The price to book is just 0.7.

When considering these ratios, investors should note that earnings are down significantly over the past year. Wall Street’s long-term growth projection, however, is 15 percent.

5. Analyst Ratings

LeapFrog has no Sell ratings, nine Hold ratings and two Buy ratings. The average price target is $5.83, implying 47.2 percent upside from current levels. The Street high is $8 and the low is $4.

6. Liquidation Value

Shares of Equity Residential are off to a strong start in 2015. The stock is up 3.1 percent in the first two days of the new year while the broader market has been selling off.

Equity Residential is one of the largest multifamily housing REITs with an enterprise value of $37.8 billion. The company’s approximately 400 high end properties are concentrated in major cities across the country, such as Washington DC, Los Angeles and New York.

(image from investor presentation)

In 2015, Equity Residential’s price will be highly dependent upon action by the Federal Reserve. Simply put, if the cost of debt rises due to an increase in the federal funds rate, REITs will suffer. However, because many are anticipating the Federal Reserve will raise rates sooner rather than later, some bearishness is already built into the price.

Ron Insana, editor of Insana’s Market Intelligence, is bullish on Equity Residential, citing the Federal Reserve’s unwillingness to raise rates. Insana commented on Benzinga’s Premarket Prep, “I don’t necessarily think the Fed is going to be able to raise interest rates in 2015. I’m operating under the premise still that the US is not just the best house in a bad neighborhood, but actually a pretty good house… The Federal Reserve, with inflation moving lower rather than higher and away from its two percent target, is going to take its time. Not just being patient, but ultimately may not have to pull the trigger in 2015.”

Regarding valuation metrics versus other large cap REITs, Equity Residential is trading at 25.2 times TTM Cash flow versus the comp group median of 20.1. The forward price to cash flow ratio is 22.7 versus the median of 20. Shares are trading at 2.5 times tangible book, in line with comparable companies.

In terms of financials, the company has posted strong FFO figures compared to street expectations. Analyst estimates have been beaten for seven of the past nine quarters. This, along with other factors, has led analysts to be mostly positive.

The fast casual dining industry has been one of the most talked about segments of the market over the past year. The following chart of sales and earnings growth helps to explain this phenomena. F2024-F2015 growth is measured as the estimated growth between fiscal year 2015 and fiscal year 2014.

This article compares multiples for five of the most popular fast casual restaurants: Chipotle, Panera, Noodles, Potbelly and El Pollo Loco. Because the segment is growing very quickly, multiples are based on Wall Street’s estimates one year in the future.

To get a quick sense of relative value, each company was ranked from one to five on forward PE, EV/Sales and EV/EBIT. The three ranks were then averaged for a composite score. Some may argue that multiples without growth in the denominator aren’t useful, however I do not believe this is the case here because the growth looks to have normalized by 2015 (with the exception of Panera).

Panera Bread Co

Composite multiple rank: 4.7/5.0

As noted above, Panera has significantly less projected growth than the comparable group, so it makes sense for Panera to have lower multiples. A primary reason for lower growth is that Panera is closer to its target number of restaurants than other fast casual restaurants, so growth will be more dependent on increasing same store sales.

Forward PE and EV/EBIT multiples are the lowest at 26.33 and 16.7. EV/Sales is the fourth lowest at 0.87.

El Pollo Loco

Composite multiple rank: 3.3/5.0

El Pollo Loco started its life as a publicly traded company at the end of July. Shares initially skyrocketed as pundits compared the company to Chipotle (which is ~27 times larger by market cap), but are now trading just a few percent higher than they opened. Note that TTM figures were not included in the chart above because old data is unaudited and it may be non comparable due to accounting nuances.

Shares of El Pollo Loco are trading at a forward PE of 38.5 and forward EV/EBIT of 22.3, fourth highest of the peer group. EV/Sales is currently second highest at 3.08.

Potbelly

Composite multiple rank: 3.0/5.0

According to the chart above, Potbelly’s earnings fell 99.3 percent in the most recent twelve months. While this is technically correct, much of the decrease is due to a one time $16 million tax credit. Excluding the tax credit, earnings are down 84.5 percent. The drop in earnings can be largely attributed to a 14.2 percent increase in SG&A expenses.

Potbelly has the lowest EV/Sales multiple at 0.87, but the second highest PE and EV/EBIT multiples of 60.6 and 29.6.

Chipotle Mexican Grill

Composite multiple rank: 2.3/5.0

Chipotle is arguably the most talked about fast casual restaurant on Wall Street. This is probably a function of the company’s double digit growth and $20.9 billion market cap. A combination of retail investor attention and liquidity likely play a role in boosting the stock’s price, compared to its peers.

The company has the highest EV/Sales multiple at 4.9 and median PE and EV/EBIT multiples of 47.9 and 28.1.

Noodles & Co

Composite multiple rank: 1.7/5.0

With the goal of opening 2,500 noodle dish restaurants across the country, the company currently has just over 400 restaurants. 2014-2015 growth is projected to be the highest among the peer group at 17.3 percent sales growth and 26.7 percent earnings growth, however it also has the PE at 65 and EV/EBIT of 38. EV/Sales ranks in the middle at 1.95.

The following table summarizes these finding.

Shares of Valero were no exception to the broad energy sector sell off when OPEC decided to leave 2015 supply unchanged and oil prices plummeted. Shares of Valero fell 4.7 percent, but have since recovered all losses and are actually trading 1.9 percent higher than before the decision.

Valero participates in the oil supply chain as a refiner. The market has concluded that refiners will not be severely damaged by the drop in oil. This is because the refiners profit from the crack spread, not selling crude (the crack spread is the difference between the price of crude and petroleum products extracted from it).

Valuation

Amid the drastic swings in Valero’s price, it makes sense to look at shares from a valuation perspective. The stock has been referenced by several experts during the recently, including expert investor Ron Insana.

This analysis uses a multiples approach to estimate a share value. Multiples used include EV/Sales, EV/EBIT, P/E and PEG. Because many analysts have updated their price and earnings estimates for the industry in recent days, forward data for Valero and the comparable group can be trusted as current.  Trailing twelve month, fiscal 2014 and fiscal 2015 data is used.

The above analysis yields price targets of $64.35 and $58.75, depending if the median or average of price estimates for the 11 multiples is preferred (I prefer median as it removes extremes from the data). These estimates are 24.7 percent and 13.9 percent above Thursday’s closing price.

Disney is one of several hundred S&P 500 stocks trading within a few percent of its 52 week high.

At the end of last week, shares of Disney broke above above two resistance levels that have tripped the stock up in recent months (~$91 and ~$92). However, the move to $92.51 was made in days surrounding the Thanksgiving holiday; as expected, trading volume was much lower than average.

On Friday’s shortened session, for example, only 3.85 million shares traded hands compared to the 6.92 million share three month average. Taking that rate of trading and extending it as if Friday were a full day (overweighting heavier morning trading), the issue still would have traded approximately 20 percent less than the six month average. This light volume takes conviction away from the move to an all time high because light volume trends are often reversed. As more market participants are active in the upcoming week, they may view the new high as overpriced.

On the other side, investors should be aware that betting against momentum can be very dangerous. Disney did make back to back all time highs last Wednesday and Friday. The following 42 year chart (as far back as Yahoo’s database goes) emphasizes this point.

Another consideration when preparing to trade Disney is the Friday release of a teaser trailer for the newest installment in the Star Wars series: Star Wars: The Force Awakens. Institutional investors likely used the weekend to gauge early consumer response to the film. In addition, retail investors have a habit of becoming overly excited about new product launches.

The previous three Star Wars films (not including Clone Wars) averaged $1.06 billion in the box office (adjusted for inflation), seven times more than the average $150 million budget (adjusted for inflation).

Shares of Disney closed at $92.51 Friday, 0.48 percent off the stock’s all time high.

Shares of Under Armor are trading around the pivotal $70 level. Shares of the active wear manufacturer have been rejected at and struggled to hold (reaching as high as $73) this level.

With shares once again approaching all time highs, it makes sense to consider two key valuation components; revenue and margins.

Sales of the active wear manufacturer are up 85.6 percent over the past five years for a compounded annual growth rate of 13.2 percent. This makes growth faster than 92 percent of the textile industry average. With shares currently trading at 5.1 times sales, the market is pricing in significantly more growth.

Analysts at Wells Fargo believe the company can more than double its revenue (to $10 billion) by achieving five percent market share, the market share it has domestically, on an international basis. If shares were to remain $70, $10 billion of sales would bring the multiple down to 1.5 times sales. The industry average price/sales ratio is 2.5, but keep in mind the time value of money and risk of sales growth when trying to put a price on future sales.

Another factor to consider when valuing Under Armour are margins. The chart below from Factset compares sales growth (blue) with gross margin (green) and EBIT margin (purple) over the past several years.

As can be seen, despite growing revenue Under Armor has not been able to improve its margins. CFO Brad Dickerson commented in the most recent earnings call (third quarter): “Our gross margin rate is expected to decline approximately 100 basis points year-over-year, given a higher mix impact of our International business, which is more weighted toward lower-margin distributor businesses during the period and also reflecting some currency headwinds given the strength in the U.S. dollar.”

There are two ways investors can interpret flat margins. First, there may be significant upside in earnings as margins expand. Second, the company’s inability to expand margins is a sign that earnings growth will have to come from increased revenue, which will eventually limit upside for the stock.

Shares were last trading at $71.48.

Shares of Seagate Technology are up 11.3 percent since the company reported its third quarter results at the end of October. However, there may be trouble ahead for the stock

Industry

Seagate operates in the duopoly hard disk drive market with Western Digital (85 percent combined market share). The nature of the industry has allowed it to historically have strong margins; EBITDA margin for the firms is 19 percent and 20.5 percent, respectively. However, because the industry is maturing, growth has slowed. Seagate’s sales are up 20.4 percent over the past five years for a compounded annual growth rate of just 3.8 percent. Nonetheless, shares are trading at a PE of 14.4 (although forward PE is only 11.1).

Looking forward, IBISWorld expect global hardware manufacturer revenue to grow at an average rate of 4.3 percent. Regarding rising standards of living in emerging markets, IBIS analysts state, “The explosion in digital information and content, along with falling prices for broadband access and software, will encourage spending on computers and peripherals, boosting industry revenue.” However, the report does warn that prices are expected to drop as technology develops and volume increases.

Smart Money

Looking at what “smart money” is doing often makes sense before entering a stock. A massive wave of insider selling draws a major red flag with regard to Seagate.

Academic research has proven that on average insider selling does not correlate with a decrease in share price, but the magnitude of selling at Seagate is very alarming and may indicate trouble. In the past month alone, the Chief Financial Officer, Chief Technology Officer, Chief Accounting Officer, Treasurer and almost every director have sold shares, not to mention additional selling earlier in the year. Widespread selling by individuals most familiar with the company while the stock trades at all time highs should be scrutinized by investors.

Institutions increased their stake by 1.2 percent for the quarter ended September 30. Shares have risen 12.9 percent since then.

Price Action

Shares of Seagate made an all time high of $66.52 Friday before retreating 2.4 percent. On one hand, this indicates there may be resistance around the level. On the other hand, the stock is within one percent of an all time high and betting against momentum can be very dangerous.

MeadWestvaco shares are gearing up for a breakout or sell off as the stock floats within $0.10 of its $44.85 all time high.

Based out of Richmond, Virginia, MeadWestvaco derives 82 percent of its revenue selling packaging products and 18 percent from specialty chemicals.

(image from investor presentation)

Financials

In terms of value, MeadWestvaco looks to be trading at favorable ratios compared to its competitors. Multiples are inline with the containers and packaging industry average while the company has been able to increase its earnings much more significantly than average for several years. EPS is expected to increase by an additional 20 percent next year compared to 13 percent for the industry.

This growth can be attributed to a major focus on cost cutting. CEO John Luke commented in the company’s most recent conference call, “Our result demonstrate that we’re on track toward our goal of achieving industry-leading margins.”

One concern is that sales growth has lagged peers in recent years. As can be seen in the image above, emerging markets play a significant role in MeadWestvaco’s business. Over the next five years, IBISWorld expects domestic sales of packaging products to slow to 1.9 percent. Because the company draws a significant portion of its revenue from emerging markets, the company is positioned to take advantage of faster growing markets. The rate of development in Brazil will be especially interesting.

Activist Interest

MeadWestvaco is one of the largest holdings of activist fund Starboard Value, making up 16 percent of the fund’s portfolio. At CNBC’s Delivering Alpha conference in July, Starboard’s CEO Jeff Smith commented that he believes the stock is worth $59 per share (33 percent upside). Starboard has made several suggestions to maximize shareholder value, including selling the specialty chemical business and engaging a $500 million buyback. Shares rose five percent on Starboard’s initial comments (in a 13D filing), indicating the market thinks these changes are feasible.

Another implication of Starboard’s position is that pressure will continue to be on management to increase margins, which it has so far been successful doing.

Dave and Busters underwent a successful IPO in the middle of October and is trading 23 percent higher than the stock opened.

The analyst quiet period was lifted last week and Raymond James, Piper Jaffray, Stifel Nicolaus, William Blair and Jefferies started coverage on the stock with a buy rating (or equivalent). The consensus price target is $24, 12.7 percent higher than shares finished last week. Investors should be aware that all five firms were involved with the offering.

With 52 percent of its revenue from arcade games and 48 percent from food and beverages, Dave and Busters is unlike any other publicly traded company. Chuck E Cheese had the most similar business model, however it is no longer publicly traded following acquisition by Apollo Global Management at the beginning of the year.

Apollo acquired Chuck E Cheese (also known as CEC Entertainment) for a $1.3 billion enterprise value. Trailing twelve months EV/EBITDA was 7.69 and EV/sales was 1.58. Applying these values to Dave and Busters gives an average enterprise value of $944.7 million. Pulling out debt gives an equity value of $419.7 million.

This estimate, based on Chuck E Cheese multiples, is just half of Dave and Busters’ $832.6 million market cap. However, growth prospects for the two companies are significantly different. While Chuck E Cheese’s growth has been flat for several years, Dave and Busters recently announced 15.9 percent first quarter sales growth generating 17.9 percent EBITDA growth.

CEO Steven King recently commented, “we believe that we can own and operate in excess of 200 stores in North America, which is approximately three times our current store base." The company is on track to open seven or eight new locations in 2014 following five openings in 2013.

Shares of Five Below have traded in a clearly defined $10 range since the start of the year. With shares converging in the middle, it makes sense to take a look at the stock.

Five Below is a discount retailer focused on selling trendy items to teen and pre-teen customers. Similar to a dollar store, Five Below only sells products for $5 or less. As of the most recent quarter, the company had 353 locations spread through 20 states. Stores are currently located in the northeast.

Geographic Expansion

As can be seen in the following map from an investor presentation at the beginning of the year, Five Below occupies just a fraction of the country.

The company has increased its number of locations by 28 percent over the past year and there is no indication that this trend is slowing. Five Below has also shown that its openings are productive with a 16.6 percent return on assets versus the specialty realty average of 11.5 percent. Return on assets can also demonstrate scale; the ratio is up from 10.5 percent in 2012 and 13.8 percent in 2013.

“FIVE continues to demonstrate that it can open highly-productive new stores and get a strong customer response even when it moves into entirely new markets, like Texas,” commented analysts at Guggenheim.

Margins

Coupled with strong growth are impressive margins. Although the company lacks economies of scale that its already established competitors enjoy, margins are almost inline with industry averages.

Over the past year Five Below recorded gross margins of 34.6 percent and operating margin of 8.8 percent versus specialty retailer averages of 36.9 percent and 13.4 percent. As new locations are opened and the company gets better at sourcing its products, these figures should rise to at least the industry average.

Value

With little doubt about the likelihood of earnings growth, the question is whether or not this is already priced into shares. To determine this, a simple multiple analysis was used. The peer group consists of specialty retailers whose annual growth is expected to be at least 20 percent over the next five years and have positive earnings. From here, P/E, P/Sales, PEG and P/Book were considered.

Lydia Idem Finkley, FaithMightFX.com - #PreMarket Prep for November 5, 2014

Ann Logue, "Day Trading for Dummies" - #PreMarket Prep for November 5, 2014