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It was a volatile week on the markets. So volatile that Thursday was among the largest intraday moves in the S&P and NASDAQ’s history. Enough for us to speak about it in this newsletter.
But first, we have one of our recent Bull List additions, Aritzia, reporting earnings. Aritzia is a company that I (Dan) ended up buying after our addition.
Along with Aritzia, we had Pepsi and Blackrock (two of our US Foundational Stocks) post exceptional earnings. Let’s get into it!
Aritzia is now up 40% since we added it to the Bull List and has rebounded nearly 50% off June lows. The best part about it? We still feel there is value in the company in the high $40 range. Let’s take a peek at the company’s recent earnings.
Aritzia (TSE:ATZ)
Aritzia continued its exceptionally strong 2022 (the company’s Fiscal 2023 year), beating 2nd quarter estimates on all fronts. This company has not missed a top or bottom line earnings estimate since 2020.
Revenue of $525M topped estimates by over 16%, and earnings per share of $0.44 came in 33% higher than expected. The company also reported EBITDA of $82.56M, 14% higher than expectations. On a year-over-year basis, revenue increased by 50.1%, net income by 16.1%, and adjusted EBITDA by 13.3%. However, the quarter’s highlight was the company’s continued growth in the United States.
Aritzia posted US revenue of $263.2M, nearly 80% higher than one year ago. US revenue also made up 50.1% of total revenue in the quarter.
eCommerce continued its strong growth, increasing 33% year-over-year and online sales now make up 33% of the company’s total revenue.
Margins continued to dip. However, this is expected in the current environment. Gross profit margin decreased by 2.7% but remained relatively strong at 41.9%. Once inflation starts to cool, we will likely see these margins recover.
The company expects to deliver 25-30% top-line growth this year and is well on track to do so. It also reaffirmed it would invest up to $110M-$120M into new boutiques, distribution centers, and investments into eCommerce technology.
Overall, considering the environment, operations continue to be strong for Aritzia.
You can read our updated report on Aritzia here
U.S. Foundational Stocks Pepsi and Blackrock report earnings
It was a great start to the earnings season as two of our US Foundational stocks reported strong quarterly results.
Pepsi reported third-quarter earnings that beat on both the top and bottom lines. Earnings of $1.97 beat by $0.12, and revenue of $21.97B (+8.8% year-over-year) beat by $1.15B. The company also raised full-year earnings guidance by $0.10 to $6.73 per share and organic revenue growth from 10% to 12% despite raising the negative impact expectation for foreign exchange and rising inflation costs.
As a consumer defensive stock, Pepsi is an excellent option for investors looking to ride out the volatility. Their operational performance in a challenging environment is a testament to this. Combine this with a continued focus on cost management initiatives and continued innovation; there wasn’t much to pick apart this quarter. The company is now down just 1.8% on the year, while the S&P 500 is down more than 25%.
Turning our attention to Blackrock, the asset manager did not disappoint. Third quarter earnings of $9.55 beat by $2.28, and revenue of $4.31B (-14.7% Y/Y) beat by $140M. The big dip in revenue is not surprising considering the state of the markets. Similarly, Assets Under Management (AUM) dropped to $7.96T, down from AUM of $8.49T at the end of Q2, and the average AUM of $8.48T was down from $9.02T at the end of Q2.
On the bright side, the company still delivered net inflows of $17B and posted organic asset growth of 4% over the last twelve months. The most significant impact to revenue was a dip in performance fees. This is to be expected when the markets are in such disarray.
Also worth noting, the company repurchased $375M worth of shares. Overall, it was a better-than-expected quarter amidst a considerably challenging environment for capital markets.
Market volatility erupts
Whether you are a new or an experienced trader, you might feel like the markets have been quite volatile as of late. If you have that feeling, you aren’t wrong. The markets don’t like uncertainty, and when faced with the unknown, they struggle to find a direction.
This point was driven home this past week, particularly on Thursday. The markets opened deep in the red on a higher-than-expected CPI print (8.2% vs 8.1%) south of the border. A miss to the upside is usually a negative as it means that while inflation is slowing, it may not be coming down fast enough to ward off more rate hikes.
It means that the worst may not be over for the markets, even though inflation has been at its lowest point since earlier this year.
Despite this, the markets did a complete 180 and we saw one of the largest intraday swings in history. Let’s look at the intraday swings chart on the S&P 500, which reflects the 20 most volatile days as of 1967 (make sure you have images enabled).
As you can see, in terms of volatility, the S&P 500 has been dominated by events over the past few years. On Thursday, the S&P 500 underwent a 193.83pt swing – the third largest of all time. On a percentage basis, it was a 5.5% swing, ranking it as the 10th most volatile day in history.
Considering the market cap of all of the companies on the S&P 500 is over $30 trillion, a 5.5% swing in just hours is hard to comprehend from a financial standpoint.
Now let’s look at the Nasdaq Composite.
This chart reflects the most significant point swings since 1985, and you’ll notice that it has not yet been updated with Thursday’s numbers.
The Nasdaq Composite underwent a 608.88 daily point swing this past week. That ranks it 4th all-time. It was also the 13th most volatile day, considering the 5.6% swing.
We have many members asking “why”
We get questions all the time about why this and why that. This type of activity is all fear or euphoria driven, which is nonsensical. Trying to make sense of these intraday swings is wasted energy.
The bottom line is that as retail investors, we can’t let ourselves get caught up in the market’s day-to-day fluctuations. If we do that, we are prone to making mistakes as we allow emotions to take hold of our decisions. It is also the single biggest reason why retail investors tend to underperform.
An example would be if an investor panicked and sold their positions on the poor open due to the inflation numbers. In just 2-3 hours, the markets had rebounded to the point where an investor may have reversed course and repurchased their holdings. And as we witnessed on Friday, the markets fell by over 2.5%.
This seems crazy to think of. Panic selling in the morning, panic buying in the afternoon, only to be in an even worse position the next day at market close. But to many investors with a quick trigger finger or those trying to time the markets, this is a realistic scenario with the volatility we’re seeing.
Sometimes the hardest thing to do is nothing. It bears repeating again and again: buy good companies at reasonable prices. Don’t try and time the market. Have a plan, stick to it, and the rest will take care of itself.
