One of the key principles of my investment approach is to regularly add new money to my account, which allows me to make new purchases. Therefore, I will buy more shares before the end of this year as I will add money to my account. And it is likely that I will buy more shares that I already own instead of creating new positions in other companies.
This is subject to change, of course. I could easily be lured into starting positions in the cryptocurrency exchange Coinbase globalrestaurant ordering platform Oloor luxury furniture company HR. However, with 35 positions already open in my retirement portfolio, I see value to add to the companies I am particularly bullish on.
For me, DIY dealer Floor and decoration backgrounds (NDF 0.37%)advertising technology company (adtech) PubMatic (PUBM 0.39%)and travel booking platform Airbnb (ABNB 2.28%) There are three stocks I already own that I would like larger positions in. Below I have noted the size of these positions already in my retirement account and explained why I want to own more.
1. Flooring and decoration: 4.9%
Flooring retail specialist Floor & Decor has three qualities I absolutely crave a business investment. First, it is opening new locations at a blistering pace, growing from 83 stores at the end of 2017 to 178 stores at the end of Q3 2022. Second, the company is on pace for a 14th consecutive year of same-store sales growth, increasing its profitability at the store level. And third, speaking of earnings, it’s been a profitable business on a net income basis for as far as public data goes and has a healthy net profit margin of 7.1% year-to-date.
I believe this simple recipe will produce a delicious investment result over the next decade for Floor & Decor. Management previously aimed to increase its store count by 20% a year on its way to 500 locations in the long term. I expect the company to have fully developed its footprint before 2030.
home improvement retailers, including floor and decoration, face some short-term uncertainty. Housing prices are falling, which could affect home renovation spending. But given the consistency of its results so far, I expect continued growth in same-store sales and profitability for Floor & Decor over the next decade. And once it nearly triples its number of stores, I expect sales and cash flow to be significantly higher than they are now.
Also take into account that bigger rivals Home deposit and Lowe’s To pay dividends. Floor & Decor is not paying a dividend today, but I expect that to change once it exits growth mode. Therefore, by buying more of these stocks today, I am participating in the growth of the company and will probably be rewarded later with an attractive dividend.
2. PubMatic: 2.7%
Publift, a small company that tries to help publishers better understand the digital advertising ecosystem, recently released a list of 24 important supply-side advertising platforms (SSPs). PubMatic was on this list, but there are more SSPs than the two dozen listed. My main point here is to note how the SSP space is unquestionably recognized as very competitive, but that’s why I like PubMatic stocks and want to own more of them.
Publishers frequently work with dozens of SSPs simultaneously, but PubMatic partners with its publisher clients to “optimize” their advertising technology structure – removing some SSPs and focusing on only a few. This can yield better and more profitable results for the publisher. And by doing this, PubMatic takes market share of the crowded field of competitors.
In Q3 2022, more than 30% of PubMatic’s revenue came from channel optimization agreements, compared to just 27% of revenue in Q1. As a result, nearly a third of revenue comes from transactions in which PubMatic is one of the few players. In other words, as the SSPs are eliminated, PubMatic safely crosses over to the other side.
Investors are worried about the ad industry right now because of the economy. It makes sense. PubMatic’s third-quarter revenue grew just 11% year-over-year — its slowest growth rate as a public company by far. And revenues should be stable in the next quarter.
Consequently, there are short-term headwinds, but investor fears have pushed PubMatic’s valuation to very attractive levels. It is currently trading at around 20 times tracking revenue — comparable to the average of S&P500 — which is a boon for a small business with great long-term potential.
3.Airbnb: 2.2%
Airbnb updates its platform twice a year. On November 16, the company released its winter version, showcasing new features that are sure to make its hosts and guests happy. I believe so, because co-founder and CEO Brian Chesky is very engaged with the Airbnb community and frequently shares ideas, including some of the latter.
Among Airbnb’s recent changes is an increasing prioritization of value-for-money stays. Hosts are getting tools to see how their properties stack up, but it could also reverse a recent trend that’s been good for the business. Last quarter, the average daily rate (ADR) for an Airbnb stay was $156 per night, up 5% year over year. Growing ADR increases booking volume, but if Airbnb prioritizes value, ADR could drop in the years to come.
It could be a headwind, but I find the breeze refreshing nonetheless. Airbnb is considered the top performer in short-term rental space – space with incredible profit potential. But if Airbnb wants to keep its place at the top, it must respond to its users. Putting value first, along with the other improvements in the winter release, improves the user experience, and that’s what matters most.
Speaking of profit potential, Airbnb records its best results. The company posted a net profit of $1.2 billion in the third quarter on just $2.9 billion in revenue. This 42% margin should not be expected every quarter, but it was no accident. By simply being the middle party in short-term rental transactions, Airbnb has high profit potential and is starting to flex those muscles.
Tied to net income is measurement of free cash flow (FCF), which takes into account items such as non-cash expenses. Airbnb’s trailing 12-month FCF is $3.3 billion, which is a good amount for a company with a market capitalization $63 billion at the time of this writing.
One of my most successful past investments has been PayPal, which I bought in 2015 on the simple premise that a high FCF would snowball into favorable returns for long-term shareholders. It’s too simplified investment thesis worked with PayPal, and this can also contribute to good returns for Airbnb.
Having more and more money to work with gives Airbnb management options. It is certainly possible that the leaders turn out to be bad allocators of capital, but I am willing to bet on Chesky’s current vision, given that he has developed a global company from an idea that began in his apartment just 14 years ago.
Top of the list
Perhaps counterintuitively, the title I’m looking to add the most right now is Floor & Decor, the most important of these three holdings to me because its short-term downside is the most limited. I may be able to add to PubMatic and Airbnb for better prices. But I’m very happy with where Floor & Decor is trading at the time of this writing, and I’m hesitant to wait much longer for something better.
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