It was a fairly busy week on the markets. We started to see many high-valuation stocks take large-scale losses after earnings, including 25%+ losses from companies like Duolingo, Doordash, Celsius, and Elf Beauty.
Will the markets get rockier? It is difficult to say. There are still plenty of pockets of the market that are offering attractive long-term opportunities. Could they get 10%, 20%, or even 30% cheaper in the event of a market correction? Sure, they could. However, this is impossible to predict. For that reason, the best thing to do is to simply buy high-quality companies at reasonable prices and ignore where prices might be in the next month or two.
There is a lot to talk about this week, including a fairly rough quarter from Cargojet. Despite the quarter, I’m continuing to accumulate shares at lower prices, and I will explain why during the earnings section.
The one thing I will say is that it is especially difficult to time the bottom of an economic cycle. This is what makes cyclical stocks so tricky emotionally. We can look no further than a Bull List stock BRP Inc (TSE:DOO).
If you bought the stock in early March of 2025, you were down nearly 23% a month later, and probably felt a little silly.
However, fast forward to now, and you’d be up 54%, outperforming the market.
If you accumulated during the lower periods in April, you’d likely be up even more.
I cannot stress enough how immaterial short-term price movements are in equities, and how critical it is to form a long-term investing thesis when buying companies.
If your idea of a successful/poor investment is whether or not you are up or down 6 months after you bought it, your mentality needs to shift to a longer time horizon, especially if you are acting on these short-term emotions.
Let’s dig right into the newsletter, as I have a ton of stuff to talk about.
Of note, I’ll go over Topicus (TSEV:TOI) in this week’s newsletter, and Constellation Software (TSE:CSU) in next week’s. It was an outstanding quarter from both companies.
I sold my Starbucks (SBUX) position, and will be removing it from the US Foundational List
Starbucks had been a long-term holding for me, and a company that performed exceptionally well for a long time. However, I believe it is a prime example of the fact that no company is truly a buy-and-hold forever.
Over the last few years, the business has faced some large operational setbacks. Some were beyond its control, that being large-scale inflation. This inflation caused a substantial cooling in terms of consumer spending.
When groceries were accelerating in price by 9% a year, a simple way to cushion that blow was to cut out expensive lattes from spending.
The company has struggled for a while now, and its removal from the Foundational Stock List would have come last year, had the company not hired former Chipotle CEO Brian Niccol to turn around its operations.
Now, I am usually not one to invest in turnarounds whatsoever. Why? Because turnarounds rarely turn things around. The vast majority of the time, they will simply burn up a ton of cash trying to change the identity of a business.
However, Niccol was a situation of particular interest to me, as he had quite literally turned Chipotle around from a struggling business to one of the fastest-growing quick service chains in the US.
Fast forward a year later, and Starbucks is still spinning its tires. There is next to no same-store sales growth, and the company’s lofty goals of turning this business around involve a lot of cash outlays, so margins are getting hit hard.
They could realistically still turn things around. However, my main concern here is that they will, as mentioned, dump a ton of money into the business with zero results.
Keep in mind, Starbucks is really not that bad of a company. The majority of struggles here are industry-wide. Let’s have a look at Chipotle:
Or Wendy’s:
The story is similar across the majority of quick-service restaurants. Consumers have just stopped spending money.
Yes, one could argue that the cheaper ones are surviving well. Look at Restaurant Brands International’s Tim Hortons segment. It is doing well. However, expensive QSR’s are struggling mightily.
Starbucks will be removed from the Foundational Stock list. However, I won’t be naming a replacement yet. With the end of the year approaching, I will announce a replacement for Starbucks in the New Year.
With the proceeds of my Starbucks sale, I simply fed it into all of my other US holdings inside my RRSP.
Earnings
Cargojet
Cargojet reported a relatively patient quarter. Why? Because it reflects the reality of the current trade environment. Soft international volumes, solid domestic performance, and the need to remain patient until the environment turns around.
While there’s no breakout story here yet, management is positioning the business well for when conditions normalize, which is the core part of my thesis.
Domestic revenue was the clear outperformer, growing 6% year over year thanks to ongoing e-commerce strength.
As I’ve mentioned a few times, this portion of the business acts as the company’s foundation. Stable, contract-driven, and inflation-protected. This segment provides the consistency Cargojet needs to navigate the volatility in its global charter and ACMI operations.
Speaking of those operations, they certainly remain challenged.
ACMI revenue declined as customers like DHL shifted capacity to shorter-haul, lower-yield routes. The difficulties when it comes to ACMI can be described in pretty much a single sentence:
Because of the US causing substantial trading tensions globally, shippers are just not willing to commit to leasing aircraft and crew, as they have zero idea what restrictions or tariffs will be put in place tomorrow, next week, or next month.
Charter flying also slipped, particularly from Canada to China, where frequency fell from five flights per week a year ago to three currently. Management expects a seasonal increase in Q4 but was clear that a broader recovery won’t happen until later in 2026 at the earliest.
Margins held up impressively, which is why I have a lot of confidence here. Adjusted EBITDA margin came in at around 32%, consistent with historical averages despite a lot of softness in terms of results. The core business remains solidly cash-generative.
The fleet was trimmed slightly during the quarter, and 2026 will see minimal growth capex. With net debt to EBITDA still above 2.5x, the company’s focus is on improving the balance sheet, not attempting to grow. This may seem negative, but the reality is it is difficult to grow in an environment like this. It is more prudent than anything.
The leadership transition is on track, with Pauline Dillon taking over as CEO in a few months. There’s continuity here, which is what I like. She’s been with the company since its founding, and her elevation has been years in the making.
Looking ahead, Q4 should show seasonal strength, but not necessarily a turning point. Management also mentioned that most customers are only making near-term commitments. We need trade tensions to ease in order for Cargojet to truly flourish. Which, I do believe they will. It is just a matter of when.
The plan, for now, is to protect margins, maintain capital flexibility, and selectively pursue global charter opportunities. When the macro environment stabilizes, particularly U.S. tariff policy, Cargojet is set up to re-scale quickly. However, the key thing here is the company will not try to chase low quality volume right now in order to satisfy short-term returns.
This is not a high-growth story in its current state, but it is a well-run, margin-disciplined platform with strong customer partnerships and clear operating leverage. For investors, the near-term is about stability and capital preservation, while the long-term looks promising. You just have to be patient enough to get there.
You can view my full report on Cargojet here
Topicus (TSEV:TOI)
Topicus’ quarter was a mixed bag, primarily due to some one-off expenses that hit earnings. However, the story that matters is this: recurring revenue strength, disciplined acquisitions, and cash flow growth.
All 3 of these are occurring right now, which leaves the thesis firmly in tact.
The company posted €387.9 million in revenue, which is 24% growth year‑over‑year.
Even more compelling, nine‑month revenue now exceeds €1.1 billion, up 20%. This company is now growing faster than the “mothership” company Constellation.
Recurring maintenance continues to carry the business, increasing 25% to €277.6 million in the quarter, with ~6% organic growth. This segment makes up over 72% of revenue and is the driving segment of the company.
Yes, we certainly want to see growth elsewhere, but growth here is an absolute must. Any decline here would definitely be thesis changing.
Organic growth overall remains restrained, coming in at 3%. I have a feeling this is why the market didn’t react all that well to the quarter.
As you can see by the chart, this is one of the lowest organic growth rates Topicus has reported in quite some time. I am far from concerned right now, and until I saw a consecutive string of slower organic growth rates, I won’t be concerned.
On the cost side, expenses rose roughly in line with revenue (+27% for the quarter). There’s no sign of margin deterioration, which is a positive, especially given the company’s heavy acquisition activity recently.
The company reported €22.3 million in free cash flow available to shareholders, a 114% jump. Over nine months, free cash flow is €167.5 million, up 19%.
This is more along the lines of normal growth rates you’d see from the company (the 19%). Free cash flow with Topicus can get very lumpy from quarter to quarter, and it is very important you span it out over the course of the year.
Strategically, Topicus is staying true to its model, acquiring well‑positioned vertical market software businesses across Europe, preserving and growing recurring revenue, then consolidating where possible. With its cash generation, I cannot see this slowing down anytime soon.
The modest organic growth means Topicus still needs to rely on acquisitions to hit higher growth targets. Because of the current perceived headwinds the company is facing, that being artificial intelligence causing customers to leave to code their own systems, I expect this one to trade at a discounted multiple until those headwinds are proven to be a non-factor.
As a long-term investor, I would happily take this one at a lower valuation for an extended period of time. I will simply accumulate shares while it’s hated, and reap the benefits when it’s loved.
We have to remember, this is a company that has quadrupled free cash flow since its IPO. However, its stock price has only doubled.
Stay long‑term, focus on execution, and keep an eye on organic traction and future acquisitions.
