“Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.” — Ferris Bueller

It’s been a while since you heard from me, but I promised that when I returned, I’d come bearing news. On Wednesday, that news officially hit the wire: Alpha Loop Capital Announces Firm Launch, via Business Wire.

Alpha Loop Capital (ALC) has been a dream of mine for as long as I can remember. With the exception of wanting to play in the NBA, I was blessed with knowing exactly what I wanted to do in my career from a very young age. As it turns out, ‘only’ being 6’3” will crush those NBA dreams pretty quickly, so opening my own firm was it — that was the dream.

I didn’t sleep on Tuesday night in anticipation of the press release. Instead, I spent the night thinking about the ups-and-downs that I’ve gone through since I first started out on this journey.

I thought about the low-points, like being rejected from every big bank internship I applied for.

I thought about the times I learned life lessons that I’ll never forget. Like when I learned that you only get out half of what you put in, but if you want to achieve something, you control your own destiny. I learned that lesson when I started as the first employee at a VC firm, working under two ultra-successful individuals. It didn’t matter that the Founders held C-suite and BoD roles for large public companies in a past life. We were starting from the ground up and whatever work we put in, we only got out half, but it was always worth it.

I thought about how fortunate I was to work alongside and learn from one of the most prolific traders and hedge fund managers in Wall Street history. Someone who made it to the top and never once let that go to his head, instead, he worked harder because he loved the process of pursuing goals.

All of those moments in time, whether good or bad, I am grateful for because they led me to today. On Wednesday, a new chapter in my life began, but the goal remains the same: Love the process, not the destination.

“Don’t ever let somebody tell you, you can’t do something. You got a dream, you gotta protect it. People can’t do something themselves, they wanna tell you, you can’t do it. You want something? Go get it. Period.” — Will Smith as Chris Gardner, The Pursuit of Happyness (2006)

Not in my wildest dreams did I think that an announcement about something I worked to create would garner the attention of AP News, Reuters, Market Watch, Forbes, Morningstar, and more than 100 other outlets.

The public coverage is one thing, but it doesn’t matter as much as the personal messages I’ve gotten since the press release. To say that I am grateful would be an understatement and although it is not sufficient, I wanted to say Thank You.

For those who are interested in learning more about Alpha Loop Capital, contact info and links can be found at the bottom of the press release shown below:

Alpha Loop Capital Announces Firm Launch

PHILADELPHIA — (BUSINESS WIRE) — Alpha Loop Capital, an investment management firm, announces its official launch today. The firm is focused on a long-short investment strategy and generating alpha through innovation and client-centric integrity.

Founded by Tom Hogan, a seasoned financial professional with over a decade of experience in Equity Research, Portfolio Management and Options Trading, Alpha Loop Capital specializes in unlocking value in overlooked market segments.

“We’re excited to officially launch Alpha Loop Capital and start this journey,” said Tom Hogan, Founder and Chief Investment Officer of Alpha Loop Capital. “We’re committed to leveraging our meticulous fundamental research process and innovative trading strategies to create impact that is meaningful and lasting.”

The firm’s strategy centers on generating uncorrelated returns through long-short equities, active investing and event-driven trading. Alpha Loop’s fundamental, bottoms-up approach to investing and trading will seek to allow it to identify and capitalize on market inefficiencies across various market environments.

Alpha Loop Capital is committed to working closely with its investors and portfolio companies as it aims to transform undervalued investments into thriving opportunities.

About Alpha Loop Capital

Alpha Loop Capital is an investment management firm focused on generating alpha through innovative strategies and client-centric integrity. Founded by Tom Hogan — a seasoned financial professional with expertise in Equity Research, Portfolio Management and Options Trading — the firm specializes in unlocking value in overlooked market segments. Philadelphia-based Alpha Loop Capital employs disciplined capital allocation and multi-strategy investments, including long-short equities, active investing and event-driven trading to deliver absolute, uncorrelated returns across various market environments. Committed to strategic agility and collaborative partnerships, the firm aims to transform undervalued investments into thriving opportunities.

For more information, visit www.alphaloopcapital.com

Contacts

MEDIA CONTACT: media@alphaloopcapital.com

IR CONTACT: ir@alphaloopcapital.com

I hope this email finds you well…

It’s been a minute since I’ve written a Substack, but what better way to find my way into your inbox than with the most overused email opener?

First and foremost, I apologize for the month-long hiatus, I have been working religiously on the project I mentioned in Flash Point: Price Drives Sentiment. Although it has taken longer than expected to finish, it will be worth the wait.

As a thank you for surviving the Hoags Research drought, I have comped everyone with a 3-month paid subscription. If you have trouble viewing Paid Subscriber posts, please shoot me a note and I’ll get you squared away.

Nice Game, Pretty Boy

“June 14th, 1987. Mets. Phillies. We’re enjoying a beautiful afternoon in the right field stands when a crucial (Keith) Hernandez error opens the door to a 5-run Phillies ninth. Cost the Mets the game!” — Newman

If you’re a Seinfeld fan, I’m almost certain that you will remember the scene from which the quote above was taken. If you’re not a Seinfeld fan, I’ve included the clip below.

Whether you’re a fan or not, the scene is objectively funny. Admittedly, one of my favorite details of the scene is the date of the Mets-Phillies game because it is my birthday, only 8-years prior.

Do I think I had anything to do with the fictional error by Keith Hernandez? Absolutely.

Do I think I was the cause of the Flyers losing the Eastern Conference Finals to the NJ Devils or the Phillies losing to the Astros on my actual birthday — June 14, 1995. Absolutely not.

The Real Magic Loogie — Enovix

Enough chit chat, let’s get to the good stuff. Last Tuesday (6/25), Enovix (ENVX) announced that they signed an agreement to deliver high-performance batteries for mixed reality headsets. The stock traded as high as $17.12 (+42.2%) intraday before closing the day at $16.26 — a gain of +35.1%.

Today, ENVX stock closed at $15.10/Share, having traded down since the June 25th news release, but still higher by +25.4% since before the news broke.

I first wrote about getting long ENVX in my piece, Making the Case for Enovix, back in March of this year. Chart of ENVX stock performance since my original long thesis:

Note: If you are new to Hoags Research, I highly recommend reading that ER report as it will help fill in some gaps.

Since the first long thesis was published, ENVX stock is +94.6% higher relative to SPY (+5.90%) and QQQ (+9.74%). Not only has stock traded higher, but volume is picking up as well. In theory, the increase in average daily volume should allow institutions to enter into positions due to the better liquidity profile of the stock, but that’s not here nor there for now.

The reason I am pointing out ENVX, besides the big news that broke last week, is not to say, “I was right! I told you so!”. In fact, I wish I had the opportunity to explain why a stock idea didn’t work, but that will come — it always does.

The reason I am pointing this out is because I want to make the point that I don’t often write about individual stocks, but when I do, I am meticulous in my research. Again, this is not to pat myself on the back, I am trying to make the point that I hope to always provide readers with quality over quantity. When I’m wrong, I’ll do the same thing, pointing out where I was wrong, if I missed something, etc. I learn infinitely more from ideas where I am wrong compared to those where I was more accurate.

I’ve said it before and I’ll say it again: the goal of Hoags Research was always to publish my best ideas, focusing on quality over quantity. Some months I may have 5 ideas, other times I’ll go without a new idea. No matter what I am seeing or not seeing, I will always make myself available to discuss with readers. Many of you have already reached out and we’ve had great back and forth on companies we agree and disagree about, but at the end of the day, the more conversations, the higher the quality of posts for you, the readers.

My goal isn’t to be right all the time, that’s impossible. I also am not going to avoid posting about ideas where I was wrong — that’s a loser’s mentality.

With all of that being said, I do have a few ideas that have full reports on the way. The ideas are both on the long and short side, which should be fun to discuss. I hope to continue engaging now that I’m back from my faux sabbatical.

In the meantime, let’s all take time to enjoy Enovix’s performance and sheer willpower in proving to be the real Magic Loogie.

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” — Mark Twain

If you’re a student of history, or one of the unfortunate souls who enjoys studying semantics, you’ve likely come across this Mark Twain quote at one time or another. Even if your interests do not lie within one of those categories, you’re here reading this because you’re interested in financial markets, the handsome author, or both.

If you’re reading Hoags Research because of your interest in markets and investing, it’d be a safe bet to assume you’ve seen The Big Short (2015), which opens with Twain’s quote.

I was introduced to the quote when I saw The Big Short for the first time and it quickly became one of my favorites. Twain’s quote alludes to our tendency as humans (and investors) to believe that what we think is a matter of fact. In reality, what we believe to be true is nothing more than our interpretation and opinion of something presented to us. Further, when we act on a belief that hides under the guise of an objective fact, that is when things can go spectacularly wrong.

Take this quote for example: Despite the frequent attribution to Twain, he never actually said it. Misplaced certainty can be dangerous, especially in investing.

Although I am not a fan of semantics, I am a history junkie. If there is a major historical event concomitant with notable economic ramifications, I can promise you I’ve done my best to learn about it. I can also promise that no matter how big or small an event, humans will repeat it in one way or another. Since this is a family-friendly market newsletter, I’ll stick to investing commentary and let you get your nature vs nurture fix elsewhere.

Tom Versus Economics

Speaking of things that don’t change; when I was getting my degree in Economics at Penn State, I had a propensity of challenging everything I was taught, which is putting it mildly. My issue wasn’t with the professors, but with Econ as a whole — that markets and consumers were rational, yadda yadda. The whole ‘rational’ bullshit didn’t sit well with me and I made sure to make that known.

Would it have been easier to explain the theories as they were taught to me? Absolutely.

Did I do that so I could go along to get along?… Were Gator’s bitches using Jimmies? Absolutely not.

It’s in my nature to be relentless if I have a point to make and boy, oh boy, did I have a lot of points to make with the PhD’s teaching my classes.

During my senior year at Penn State, for example, I found myself teetering on the verge of failing a labor economics course, which I needed to pass in order to graduate on time*. In a last ditch effort of passing, I decided it was best to take it up with my professor, who, in all seriousness, I respect greatly and took four separate courses with.

*On Time: A semester after all of my friends, but hey, semantics, am I right?

My argument was simple: My years of outright refusal to ‘answer with the theory’ rather than real life outcomes — which I preferred — was proof that humans are not rational. Meaning, I wasn’t wrong, economics and the education system were wrong… I can’t say I changed his way of viewing economics, but I can say that it led to me passing the course.

Paying the Piper

All jokes aside, one of the most glaring things I learned about in the world of ‘Academic Economics’ is that no matter what has gone wrong in the past, economists, like investors, will not change unless they are forced to. We’ve seen economists move the goal posts time and time again, creating new ways of increasing or decreasing the money supply, controlling the yield curve, and so on. So far so good this time, right?

Wrong, unfortunately. Math, whether we like it or not, is like gravity. Economists can manipulate whatever they want in order to sleep at night, but one day we will have to Pay the Piper. There’s no free lunch, as they say.

Flash Point

Flash Point: A moment or event in which a conflict, especially a geopolitical conflict, suddenly escalates

As I said earlier, I am a student of history. I believe an understanding of history is a fundamental necessity for all good investors and traders. I understand that I don’t know what I don’t know, but one thing I know for certain is that I can learn from the past and prepare my portfolio in a way that allows me to withstand any and all market volatility.

The reason I am writing this now is not to be negative, it is to be proactive. There is nothing I hate more than being a pessimist, but Utopia doesn’t exist so I’d rather prepare for a rainy day and hope it never comes rather than the inverse.

Put another way — I don’t know when or what the Flash Point will be, but it’s out there. Sure, nominal GDP and wages are growing, but real inflation, which I measure using the Chapwood Index, not CPI, continues to show negative real wage growth. Moreover, recent soft economic data prints around job numbers and hourly wages have piqued my interest.

Gator’s Gat

What I’ve seen in markets the past year has had me quite worried, but if we’re using SPX levels to count records, I’m losing. Am I worried for good reason? Yes, I would say so, but like Mark Twain pointed out — what I think is factual is nothing more than my own opinion. An opinion which is based in my interpretation of the data that I’ve seen.

If I flip my perspective to that of the ‘long-and-strong’ crowd, I’d point to positive data points that has ignited investor appetite to line up at the 24/7 risk-on buffet.

I’ll leave you with this food for thought: if everybody’s in line, make sure you’ve got your eyes on the exit. Just because others let price drive sentiment does not mean you have to. Know what you own and do not let FOMO play a roll in your investing decisions.

Note: I have a lot of cool things coming up so keep your eyes out for some updates coming over the next few weeks.

One more clip for old time’s sake:

“The price is wrong, bitch” — Adam Sandler as Happy Gilmore

Last week, Blade Air Mobility (BLDE) continued to prove that the market is still behind the curve when it comes to understanding the company when they announced earnings on May 7th. Once again, management executed on their short-term goals, resulting in beats on the top and bottom lines.

Before I get into the company’s earnings, I want to tip my cap to Blade’s entire team for executing in Q1 and blowing past estimates. I also want to applaud the individual efforts of Founder and CEO, Rob Wiesenthal, as well as Chief Financial Officer, Will Heyburn. Blade’s continued success is a direct result of their operational efforts and leadership, so hats off to them.

For those who are not familiar with Blade and/or would like a refresher, I recommend reading my first piece before reading on, which can be found here: The Market has the Story Wrong, Luxury is Essential

Earnings: Q1 2024

• Total Revenue: $49.08mm estimate versus $51.51mm actual — Beat
• +13.8% YoY compared to $45.27mm in Q1 2023
• Adjusted EBITDA: Losses contracted by 54.1% to ($3.55mm) from ($7.72mm) in Q1 2023

Revenue by Segment

• Passenger Revenue: Contracted (16.3%) to $15.49mm from $18.50mm in Q1 2023

Note: Blade previously discontinued their seasonal by-the-seat service between NYC and South Florida, which was the primary driver of the loss in revenue

• Medical Revenue: Grew +34.6% to $36.03mm from $26.77mm in Q1 2023
• Flight Profit: Increased by +41.5% to $10.14mm from $7.16mm in Q1 2023
• Flight Margins: Flight margins expanded 386bps to 19.7% from 15.8% in Q1 2023

Non-GAAP Financial Results for BLDE Q1 2024. Source: Blade

Guidance: FY 2024

• Revenue: $240mm — $250mm — Reaffirmed
• Positive Adjusted EBITDA

Looking Back

When I first wrote about Blade on March 27th, BLDE was trading at $2.86 per share. Today, stock closed the day at $3.68, which is a gain of +28.7%. During that same period, SPY has returned 0.02%, which is not a typo, SPY is flat during the same period.

Does that mean I’m the next John Nash? Probably not, but it does mean that the market is beginning to pay attention to Blade. Better yet is the fact that the market is still undervaluing Blade, in my opinion. I say better yet because I (selfishly) wanted to add to my existing BLDE position while the market mispriced the stock, which I did.

NOTE: John Nash, for you curmudgeons living under a rock, is the name of the mathematical genius portrayed by Russell Crowe in A Beautiful Mind, which is a true story and won four Academy Awards, but I digress.

As of today, BLDE and ENVX, which I wrote about previously, are the largest positions in my portfolio, each of which are ~10% positions.

Once I read through the earnings release, which were released pre-open on May 7th, I was worried that stock was going to rip higher, but stock closed down on the day of earnings at $3.58/share after opening at $3.72/share.

When it comes to trading after earnings releases, I follow a simple rule — don’t do it.

The reason why I don’t buy or sell right after earnings is because I’m not a mind reader, I can’t tap into the zeitgeist to know where stock is going to close following earnings announcements. On the other hand, I am smart enough to understand that I don’t know what I don’t know. So, rather than panic buying or selling a stock immediately after earnings, I take a day or two to take in the information before making a decision.

My Thoughts on BLDE Today

In all seriousness, the reason it took me a week to publish a follow up to Blade’s earnings is because I truly thought I was missing something that would explain the price action in the stock. Rather than force a piece out, I spent the last week combing through the BLDE earnings release and 10-Q to make sure I didn’t miss anything that would explain and justify the stock price. Had the market valued BLDE how I thought it should after Q1, stock would easily be $4+.

For the life of me, I couldn’t figure out why the stock has been range-bound since earnings on May 7th, but then I remembered that the market has always mispriced BLDE, so why would now be any different? Once I remembered that and went through due diligence, I can confidently say that Blade’s Q1 wasn’t just good, it was great. In fact, I am more bullish on BLDE than I’ve ever been.

How I View It

When it comes to investing in growth companies, I have an extensive list of attributes I look at before investing, but none are more important than:

1. Management team that are effective operators
2. Capital efficient — a la “Effective Growth”
3. Product and/or Service that differentiates itself from peers

Blade checks all three of these boxes.

Do I know what BLDE will report next quarter? No, but I do know that I trust the management team to continue executing while remaining efficient with capital allocation — same as they have in the past.

I also know that Blade’s MediMobility unit is the United States’ largest air transporter of human organs for transplant — a la differentiation from peers in the air mobility space.

Finally, from a fundamental valuation perspective, the company’s earnings/cash flow trajectory is strong and Blade’s balance sheet remains bulletproof even as the company buys back stock.

I’ve said it before and I’ll say it again: The price is (still) wrong, bitch.

The market has presented investors with an opportunity to buy a stock before the true value of the company is realized by the market. Rather than wait any longer, I suggest doing your own due diligence on BLDE as you consider it for your portfolio.

I will always keep you up to date if my thesis and/or position changes, but for now, I’m putting my money where my mouth is and leaning into BLDE for the long term.

Thank you for reading Hoags Research. This post is public so feel free to share it.

Final Thoughts

Earlier I mentioned the efforts of Rob Wiesenthal and Will Heyburn, but what I didn’t mention was that on April 17th, I had the privilege of spending time with Rob and Will at Blade’s HQ in Hudson Yards. I wanted to spend time with Blade’s management team so that I could look any one of you, the readers, in the eye and tell you that I have vetted the company thoroughly.

I have an exciting announcement to make in the near future that will involve one of these two, but for now I will leave you with this:

After having met with Rob and Will I came away even more excited about Blade’s future with these two at the helm. Not only are they seasoned pros, but they are true believers in Blade as a company. They lead from the front, which shows itself in the company culture. On a personal level, they have aligned themselves financially with BLDE shareholders. Both Rob and Will continue to own millions of shares of BLDE, not having sold any outside of required sales for tax purposes.

• Note: For those unfamiliar with a Form 4, any insider transactions must be filed via a Form 4. At the bottom of said form, you will see a section titled, “Explanation of Responses” which will list any relevant reasons for an insider’s transactions.

I have taken the time read through Form 4’s filed by the company and have seen the sales which were only for taxes. I am being emphatic because I have read other comments online where, those who are bearish on the stock, have incorrectly stated that management is selling stock — that is not true. All Form 4s filed for sales have been for taxes, which are equivalent to non-cash transactions. Meaning, they do not receive any cash, all stock sold is solely for tax purposes and immediately gets paid with the stock sold.

As always, if you have any questions for me on BLDE or if you just want to talk shop, I’m available via Substack DMs.

Additional Documents

• Investor Letter — Q1 2024
• Investor Presentation — Q1 2024

-Tom Hogan

If that quote seems familiar to you, that’s because it is the same quote I used in my March piece titled, “Making the Case for Enovix (ENVX)”. I also want to point out that I think it’s safe to say that I’ve made the quote more famous than Teddy Roosevelt did, sort of like Michael Scott helping Wayne Gretzky out.

Michael Scott, played by Steve Carell, helping Wayne Gretzky

What’s not up for debate is the meaning behind the quote — putting your work out into the public domain makes you the Man in the Arena. As the Man in the Arena, you are at the mercy of the market, which will tell you if you are right or wrong in no uncertain terms. Today, the market voted in favor of my Enovix thesis following the company’s blowout Q1 earnings. Before we get into the numbers, I have to say that just because I was right today, does not mean I will be right tomorrow and all of us, as investors, must be egoless in markets in order to succeed over the long term.

Enovix Q1 Results

• Revenue: $4.05mm estimate versus $5.27mm actual — Beat
• Also came in higher than Management’s Q1 Guidance of $3.5mm — $4.5mm
• Net Loss: ($49.17mm) estimate versus ($46.37mm) actual — Beat
• EPS: ($0.35)/Share estimate versus ($0.28)/Share actual — Beat

Q2 Guidance

• Revenue: $3mm — $4mm
• Adj. EBITDA: ($26mm) — ($32mm)
• Non-GAAP EPS: ($0.22)/Share — ($0.28)/Share

As a result of ENVX’s blowout earnings, the stock is trading up +45% to $9.44/Share as of 3:30pm. When I wrote about ENVX on March 15th, stock was $7.76/Share which gives it a theoretical return of +21.6%.

Rather than wait for the question to be asked, I’ll answer it now: Yes, I think ENVX has more room to run in the short-term. A daily return of 45% is quite unusual, but I don’t think the short term move is over due to a few factors:

1. Management’s guidance seems to always be conservative in nature, while their operating prowess is much higher than what they guide to.
2. The stock has over 30% short interest as of April 15th, which is the most recent published settlement date. For those interested, you can find the Short Interest Schedule Here.

Q1 Management Highlights

• Stronger revenues and favorable product mixed helped the company achieve positive non-GAAP gross margins for the first time in the company’s history.
• Malaysia Factor Buildout: Factory Acceptance Testing (“FAT”) is complete for Enovix’s Gen-2 Agility Line and ‘nearly complete’ for the company’s Gen-2 Autoline. Site Acceptance Training (“SAT”) is well underway for both the Gen-2 Agility and Autolines.
• What does this mean? It means that the company’s breakthrough EX-1M li-ion battery will be actively producing samples in Q2 and producing capacity will increase to meet customer demands.
• Company also slid a note into the Shareholder Letter noting that in April the company produced its first internal sample of the EX-1M smartphone battery at its Fab1 facility.
• Cash Burn Efficiency: Management noted that they are targeting a 33% reduction In fixed costs cash burn, which is equivalent to $35mm+ in savings annually. Management wants to complete this goal by the end of FY24.
• New Customer Agreements: Signed a development agreement with a “top 5 smartphone OEM by unit volume”. This means Enovix has signed a development agreement with one of the following smartphone OEMs: Apple, Samsung, Xiaomi/Huawei, Oppo, or Transsion.
• This news also means that Enovix will be providing 6 of the 8 largest Smartphone OEMs with samples of the company’s EX-1M smartphone battery. Image below from the company’s Q1 Investor Presentation.

Source: Enovix Q1 2024 Investor Presentation, Page 5

So, not only on the surface were results great, the details of the results were even more exciting. As a result of these earnings, I thought it would be beneficial to revisit the summary from my previous piece. My goal is to always create value for readers and the only way to do that is revisiting what I thought before to see what was correct, wrong and what has changed.

For those interested in learning about ENVX, I encourage you to read the piece in its entirety, but for the sake of this article, the summary is listed below”:

Enovix (ENVX) continues to beat analyst estimates through exceptional operational efficiency. As the company maintains guidance heading into FY 2025, I believe Enovix will continue to de-risk by increasing its production ramp and addressing end-market demand constraints. This de-risking process is expected to continue as equipment testing at the Malaysia-based Fab-2 facility progresses in a timely manner. Furthermore, Fab-2 production is anticipated to begin production in the second half of 2024, with initial factory yields of approximately 60% once production starts, before ramping to ~90% in the second half of 2025. Once production starts at the Fab-2 facility, the company will be able to increase the pace of Fab-1 repurposing while also improving input costs. Additionally, Enovix continues to experience growth in its testing pipeline with the inclusion of more auto OEM test cases. The ongoing tests with OEMs, coupled with the company’s existing contracts, underscores the strong market demand for Enovix products across various sectors.

Reasons I am bullish:

-Superior management team and Board of Directors.

-Cutting-edge technology with differentiating factors that have created a multi-year competitive advantage over peers and significant market demand for Enovix products.

-Asymmetric risk-reward profile, given market dynamics and company valuation

My perspective on ENVX is distinct from other investments I consider because I view ENVX as a long-term investment, one I can feasibly see holding for 5+ years barring significant shifts in operational efficiency and/or poor capital allocation by management. It’s challenging to find opportunities that present a risk-reward profile that is as favorable as ENVX’s. Having followed the company since it went public via SPAC in July 2021, I am confident in my analysis and believe that ENVX will be a cornerstone of my portfolio for the foreseeable future. As a mid-cap company, I anticipate price volatility, but I also welcome it, as volatility will allow me to add to my position when the stock sells off.

Points of Focus from Previous Piece

1. “I believe Enovix will continue to de-risk by increasing its production ramp and addressing end-market demand constraints.”
2. Notes: This was a correct assumption. Enovix significantly de-risked its production ramp by continuing to move forward with both FAT and SAT goals being met. This continuation of operational efficiency is critical for future results.
3. “Cutting-edge technology with differentiating factors that have created a multi-year competitive advantage over peers and significant market demand for Enovix products.”
4. Notes: This may be inside baseball, but management’s comments about producing internal samples of the EX-1M smartphone battery at the company’s Fab1 facility is proof of their operational effectiveness. The company was never expected to be able to create these samples at their Fab1 facility, but they did. Now that Fab2 is moving forward in Malaysia, the market will have to expect production capacity to expand beyond original expectations.
5. “Asymmetric risk-reward profile, given market dynamics and company valuation”
6. Notes: Correct assumption especially given market dynamics with the stock carrying a 30% short interest. Shorts will be forced to cover as their margin requirements and interest rates of the trade will increase due to heightened volatility in the stock’s price action. I expect the stock to settle higher over the coming months barring some unforeseen announcements.

To finish, I wanted to leave you all with the updated financial summary of ENVX courtesy of Finchat.io:

Enovix Financial Summary

So with that summary, I bid you adieu. Looking forward to and hoping for a great quarter from BLDE next week on May 7th, which I will also follow up on.

For those who would like to discuss ENVX further, please feel free to reach out.

Some nights, I’m not as fortunate, dealing with insomnia as I have for as long as I can remember. Last night was one of those nights, where my ability to shut off my brain was nonexistent. Rather than focus on my lack of sleep, I thought I’d come bearing gifts courtesy of said insomnia.

Over the last week or so I’ve faced a brutal bout of writer’s block, which is unusual for me. Rather than publishing pieces, I have found myself with 3+ drafts and even more outlines for future pieces, but nothing in complete form. What I couldn’t figure out was why I was having writer’s block — until last night.

Last night, as I read through the unmitigated disaster that was Tesla’s (TSLA) earnings, it hit me that my writer’s block was due to the lack of conviction I have in the current market environment. This realization, albeit simple in nature, is critical for any investing process.

To further explain what I mean, I’ll use TSLA’s earnings as a proxy for how I am seeing the market as a whole. First, I have listed the analyst estimates and Tesla’s reported numbers for Q1 below:

• Revenue: $22.3bn estimate versus $21.3bn actual — Miss
• EPS: $0.50/Share estimate versus $0.34/Share actual — Miss
• GP Margin: Declined 199bps YoY to 17.4%
• Operating Profit Margin: 6.6% estimate versus 5.5% actual — Miss
• Free Cash Flow: $1.03bn estimate versus ($2.54bn) actual — Miss

Now, if one were to look at the estimates compared to the actual results, what would the logical price action be today? If you’re sane, you’d assume that TSLA would be trading down, but that assumption would be wrong. Instead, TSLA is trading up +12% on another Musk fairytale of future ‘lower price point EVs’ that will not come to fruition. Even if this ‘cheaper’ EV were to become real, TSLA would burn cash on every single car they sold, but Musk knows to never let a lie ruin a good story.

I have my own opinions about TSLA, but I will refrain for the time being and only use it as a data point to express my overall sentiment. In short, when the market starts showing obvious signs of being irrational, it is best that I sit on my hands and hedge as much risk out of my portfolio as I can. Until I can grasp what is going on with sentiment, economic data and the like, I’m better off doing nothing new and raising cash/hedges.

What I’m Doing Today to Hedge Risk

• Writing OTM calls in my portfolio
• Purchasing puts in QQQ and SPY for additional protection
• Revisiting my theses for stocks I own, such as BLDE and ENVX
• Studying the names I have wanted to add to my portfolio, as well as the price I’m willing to pay to own them

Although investing/trading can be confusing at times, especially for the casual observer, what I have learned is that most of the time, the simplest solution is usually the right one. I highly suggest that you do the same to help mitigate some risk and ‘lock in’ some year-to-date gains.

So as much as the Billy Shakespeare in me wishes I had something fancy to pontificate about, that is not helpful to me or you, the readers. Instead, I will get back to the drawing board and revisit my drafts knowing that in the current environment, the best thing for me to do is step back, hedge out risk, and keep my eyes on the lookout for ideas.

First and foremost, I apologize for any abruptness in my writing this week, I have been sick, but as a man of the people, I knew I couldn’t let the man flu stop me from publishing on time… Plus it’s MLB’s Opening Day tomorrow so I will be out of office in very important meetings taking place in my entertainment room.

I thought I’d have more time before I wrote my next research piece, but alas, news from another one of my favorite long-term investments broke recently. The only thing better than good news is good news that the market is mispricing and/or ignores. So, after all this time, Happy Gilmore was right…

To be clear, this is a family-friend Substack, but that was a layup.

Anyway, when news breaks in a market environment like the one we are currently in, it is very unusual for me to pay it much mind because the bar I set for names, especially growth names, is exceptionally high. The reason the bar is high is primarily due to the adolescent nature of the companies I have on my long-term, high-conviction list. But as they say, when opportunity knocks, you better answer.

Additionally, I decided that after the Enovix piece, which seemed to have had a very positive response, I thought it would be better to write reports that are more detailed rather than piecing together a few short articles here and there. That’s not to say that I won’t put my thoughts on the market out, but I think there is significantly more value in publishing longer form pieces that invite discussion. I also don’t want to bore everyone to death by writing less impactful pieces, which could have negative effects on readers who think I’m writing just to write.

Finally, I know we all have busy lives and limited bandwidth, so I want to keep these pieces less than 2,500 words. A comprehensive report would easily reach 5,000+ words so I invite whoever is interested to reach out directly to talk further. As a reminder, these pieces will soon be placed behind the paywall so I wanted to thank the 20+ readers who made the switch from free to paid after the Enovix report, it means a great deal.

Key Statistics

• Price: $2.86/Share
• Shares Outstanding: 75.13mm
• Market Cap: $214.1mm
• Enterprise Value: $69.5mm
• Current Ratio: 5.8x
• Total Assets: $294.9mm
• Total Current Assets: $206.3mm
• Total Liabilities: $60.6mm
• Total Current Liabilities: $35.5mm

*As of the cash close on 3/27/2024 — BLDE Financials as reported for Q4 2023

Company Overview

Blade Air Mobility (BLDE) provides air transportation and logistics for hospitals across the United States, where it is one of the largest transporters of human organs for transplant, and for passengers, with helicopter and fixed wing services primarily in the Northeast United States, Southern Europe and Western Canada. Based in New York City, Blade’s asset-light model, coupled with its exclusive passenger terminal infrastructure and proprietary technologies, is designed to facilitate a seamless transition from helicopters and fixed-wing aircraft to Electric Vertical Aircraft (“EVA” or “eVTOL”), enabling lower cost air mobility that is both quiet and emission-free. Source: Blade Investor Relations

1. MediMobility Organ Transport: Transportation of human organs for transplant and/or the medical teams supporting these services. Blade also offers additional services including donor logistics coordination and support evaluating potential donor organs.
2. Passengers — Short Distance: Consisting primarily of helicopter and seaplane flights in the US, Canada and Europe between 10 and 100 miles in distance. Flights are available for purchase both by-the-seat and on a full aircraft charter basis. NYC to Montauk, NYC to the Hamptons, etc.
3. Passengers — Jet & Other: Revenues primarily from non-medical jet charter and ‘by-the-seat’ jet flights between NYC and South Florida, revenue from brand partners for exposure to Blade fliers and certain ground transportation services.

Summary

When it comes to investing, I’ve learned that sometimes what qualifies as “luxury” is also a necessity. In the case of Blade (BLDE), the company operates and serves those at the top of the socioeconomic ladder, as well as provides necessary medical services as it relates to the logistics, support and transportation of organs for transplants. Blade, which was founded in 2014 as an urban transportation solution for the rich, has quickly seen its largest operating segment become a necessary service for the healthcare industry.

While on the surface, Blade may come across as the epitome of the easy money policy that we have endured the past 15+ years, if one were to take a deeper look at the company, what they’d find is an asset-light transportation company whose primary revenue stream is non-cyclical and provides a societal good. Not only is their primary revenue segment non-cyclical, it is also insulated by significant barriers to entry that the healthcare industry is innately fond of.

It took me a while understand that although markets are efficient, they are not infallible. In Berkshire Hathaway’s 1987 Investor Letter, Warren Buffett introduced us to a quote that has stood the test of time, one he took from his mentor, Benjamin Graham,

“Over the short-term, the market is a voting machine, but over the long term it’s a weighing machine.” — Benjamin Graham

There are countless times in which I left a trade early thinking I was wrong because price moved against my sentiment, rather than checking my hypothesis again before changing my positioning. Although Benjamin Graham never experienced markets with algorithms trading billions of dollars of shares and multiples of that in notional value in options and derivatives, what he always had right was that in the short term, markets are a voting machine.

I bring this up because I strongly believe that the market has misunderstood the Blade story and wrote it off as company serving a niche market rather than understanding what the company actually does. In turn, the market has taken Blade at what it used to know the company as and voted against buying the stock. This is both beneficial for my cause, as it is detrimental. For those of us with scars, we understand that being early is the same thing as being wrong, so I want to be clear when I say that I view Blade as a long-term story.

The primary reason I view it as a long-term trade is because I have a feeling that the market is going to take a long time to realize what Blade actually does compared to Wall Street’s current perception of the company. The catalyst will come in the form of earlier than expected profits, a continuous rapid ramp in revenue and/or explosive margin expansion. That, or the company is bought cheap by another transport company that sees exactly what I do, but I’m hoping the former happens first to increase my ROI.

So rather than hope that I’m timing the trade right, I’ll continue buying when the stock price falls in correlation with other SPAC stocks. I mean, the company announced a $20mm short-term buyback that would remove ~9.4% of the float only last week while 6% of the shares outstanding are sold short… Yet, since the news broke, BLDE has given up a good portion of those gains. Can someone explain to me why a company trading at less than 1.0x on Price/Revs, Cash and Book and has news like that on the wire is trading down? Anyone? Bueller?

The answer to that is diddly squat. What is valuable is writing about long term investment ideas so that you can take what I write, do your own research and then decide to get long, get short or ignore whatever it is I have to say. It’s your choice. The reason I am excited about Blade (BLDE) is not because of something imminent, — although I do love the $20mm buyback — but because of the prospects the company has over the coming years. With that being said, let’s get into it.

Reasons I am Bullish

• Announced a $20mm share buyback last week, which is equivalent to ~9.4% of outstanding market cap at the current price of $2.86/Share.
• Asset-light business model that allows Blade to continuously scale margins as the company grows operating segments.
• Operating segments that operate and serve different socioeconomic clientele, leading to a more dynamic business model.
• Resilient balance sheet that has 79% of IV in net cash, as well as almost zero debt, allowing the company to utilize leverage as management sees opportunities for future growth. Current ratio of 5.8x, net cash of $166mm (as of 12/31)
• Enterprise Value of $69.5mm…

Overview

Founded in 2014 and based in New York, New York, Blade (BLDE) has become a leader in the Air Mobility industry as a result of the company’s operational prowess and asset-light business model. The company’s ability to utilize aircraft that are primarily owned and/or operated by third-parties on Blade’s behalf has given the company operating leverage in their existing segments, while also giving them flexibility to cross over into other Air Transport-related verticals as management sees fit.

Before the company was founded in 2014 by Rob Wiesenthal and Steve Martocci, Blade was an idea years in the making. While serving as Executive Vice President and Chief Financial Officer of Sony Corporation of America, Blade’s Co-Founder and CEO, Rob Wiesenthal, had an idea that would become what is now Blade. I won’t bore you with my summary of the story, but Bloomberg published a great piece about the story of Blade in 2019.

Blade’s business model is not complex, which is one of the beautiful things about the business. Since its inception, Blade’s business model was designed to create significant operating leverage once it reached economies of scale. As such, Blade leverages an asset-light business model, where the company primarily utilizes aircraft that are owned and/or operated by third-parties on the company’s behalf. This arrangement allows Blade to pay fixed hourly rates to the company’s network of operators, who, in turn, bear the cost of pilots, aircraft maintenance, fuel and insurance. In addition to the fixed hourly rates, Blade also purchases minimum capacity agreements, which also include flight volume guarantees.

Similar to Enovix, I can once again hear you all now, “Tom, isn’t this just Uber, but for the ultra rich?”

Yes, yes it is, but that is exactly why the market has mispriced the company. See, Blade started as an Uber of sorts, but that’s the old Blade. The new Blade is now led by it’s MediMobility Organ Transport business.

Blade’s MediMobility Organ Transport is not only non-cyclical in nature, but it provides a societal good and Blade continues to garner market share at a rapid pace. The operating segment finished 2023 with revenues of $126.6mm, which equates to growth of +76% YoY growth and 56% of total revenue for the year. As a percentage of total revenue, MediMobility Organ Transport has gone from 22% and 49% of total revenue in 2021 and 2022, respectively. What’s even more impressive — MediMobility revenue was ~$20mm shy of BLDE’s 2022 Total Revenue of $146.1mm. Chart below:

Here is a screenshot of annual revenue with the percentage of total revenue contributed by MediMobility broken out:

Now, I could write a full report strictly on the operating leverage within the MediMobility Organ Transport revenue segment, but rather than doing that, I point you to this chart, which is pulled directly from Blade’s Analyst Center:

As you can see, not only is the MediMobility segment of Blade’s revenue growing hand over fist, margins are also expanding with minimal deviation, unlike the Passenger segment, which is highly correlated to economic inputs and other factors that MediMobility is insulated from.

Investment Thesis

In short, Blade’s investment thesis is based on three primary facets:

1. Short-term: $20mm buyback that would remove ~9.4% of outstanding shares at current prices
2. Long-term: Exceptional management team with a balance sheet that can withstand years of continuous growth, M&A and R&D.
3. Buy Out Potential: If the MediMobility Organ Transport business continues to grow the way that it has, I see no reason as to why Blade wouldn’t continue investing in the business. On the other hand, there are plenty of transport companies who would love to buy out a company on the cheap and have access to an established infrastructure with flight margins in the high-teens that the buyer could roll-in to their established transportation infrastructure to further reduce costs, in turn, improving margins.

Valuation

Management has guided towards breaking even in 2024 on an adjusted basis, which is almost a year earlier than expected. This is mostly in part due to the rapid growth of the MediMobility Segment, which I think should be the only aspect of the business one focuses on. Once the market figures out that Blade is not just for the rich, but it is actually a societal good with its claws dug into the world of insurance, hospitals and our ass-backwards healthcare system, the Street will be all over this.

As for institutional ownership, Blade is currently at a point where institutional ownership is going to be limited because they cannot get in in size and they can’t enter/exit the position without significantly affecting the stock price. If and once stock climbs to a $500mm+ market cap, expect further institutional ownership, further stock and debt issuance and options activity to create more volume around the name.

Conclusion

All-in-all I love what Blade has done in their few years as a public company post-SPAC. Wiesenthal has done a great job at the top and the best part for me is that he is quiet about it. I’m more than happy to wait for the Street to recognize the opportunity that Blade presents because that means I get to buy more.

By the way, I didn’t even mention that I’m essentially buying stock for cash-in-stock with how strong their balance sheet is. Let’s hope the board can pull this buyback off here sub $250mm market cap.

Additional Links

• Blade Q4 2023 Shareholder Letter
• Blade Investor Deck — Q4 2023

Disclosure: The information provided in this report is for informational purposes only and should not be interpreted as financial advice. It represents the opinions of the authors based on their analysis at the time of writing and is subject to change without notice. We recommend consulting with a qualified financial advisor before making any investment decisions based on this report.

Fed Day — a day I look forward to every 6 weeks. As a firm believer in free market capitalism, there is a part of me that always hopes that the Fed comes out and says something the market is not expecting. Better yet, the Fed says or does something that actually makes the market listen rather than continuing to call their bluff as history has shown.

My belief as a free market capitalist is that the Fed and all other central banks should never project what they expect to do. I believe that markets should be free and should benefit those who can see the things that others don’t, as our current system creates moral hazard. With that being said, whether I agree or disagree with markets doesn’t matter, what matters is making money so for the time being I will continue to utilize the information given to me and make my bets accordingly. Just like Rasheed Wallace said in 2012 before getting ejected, “Ball don’t lie!” and in this case, the market and the Fed are the ball.

For transparency, I am positioned for an increased level of volatility following today’s press conference at 2:30pm EST, but I am also hedging my bets by remaining long some high-beta stocks. Worst case scenario, stocks sell off and my hedges provide a healthy level of protection for my portfolio. If stocks move higher, my hedges, which were put on using options, will end up worthless, but overall my portfolio will move higher due to the nature of stocks that make up my trading portfolio at this given time.

What I look forward to on Fed Day is parsing through the economic data and/or market-moving news that has come out since last meeting. My goal is to leverage this information to speculate on the reasons behind any changes in the Fed’s position, comparing these changes to previous meetings.

In the last meeting on January 31st, Jerome Powell, Chairman of the Federal Reserve, made it clear that the Fed would remain data dependent — a la he said nothing new. Here are some details from the last FOMC meeting on January 31st, as well as some things to note going into today’s meeting:

• Rates Unchanged: Last meeting, the Federal Open Market Committee (FOMC) kept the Federal Funds Rate (FFR) unchanged at 5.25% — 5.50% for the fourth consecutive meeting.
• Employment: FOMC members stated that the continuous, steady growth in jobs are moving in a more consistent manner with a pace that will help the Fed achieve their 2% inflation target.
• Inflation: As stated above, employment growing steadily has given the Fed more confidence that they will be able to achieve their 2% inflation target. One of the most pressing inflation data points is wages, thus as job growth expands, inflation follows and lags the newer, higher wages set by the market. Make note of this as Jerome Powell speaks today because the Fed’s biggest fear is “sticky” inflation i.e. people making too much money for too long, moving the standard wage higher.
• Rate Cuts: As of 1pm today, the market expects the FFR to remain unchanged for the fifth consecutive meeting. Currently the market is pricing in a 60% probability of a 25bps rate cut in June, while only giving May an 8% chance of a Fed rate cut. Image below of June expectations for rates, which comes from one of my favorite resources — CME Group’s FedWatch Tool.

• Commercial Real Estate: After New York Community Bank’s (NYCB) horrific Q4 results, stating serious distress in the commercial real estate market, keep an ear out for Powell’s comments about the RE market especially if he hints at effects spilling over into the residential market. Commercial RE is approximately $20tn depending on what source you use, which is massive, but it is still only about 20% to 25% the size of the residential RE market in the US. It is no secret that commercial real estate is facing serious issues, but the result of what happens in commercial real estate is the biggest unknown to the market. If the rest of the economy can remain resilient, that may lead to a reset in commercial RE without ripple effects, but if the rest of the economy starts to slow down, commercial RE is large enough to add fuel to the fire.
• Market Levels: Although the Fed states that they do not care about stock prices, they do care about financial stress or “tightness” in the market. In other words, the Fed may not directly care about stock prices, but they are entirely aware of the effects that market levels have on consumer spending, optimism for the future, and so on. The reason I am paying attention to Powell’s comments as it relates to markets is simple: he learned in 2018 that shocking the market would create market volatility, which he does not want. Whether I agree with that sentiment or not does not matter, but what does matter is Powell’s words. He has been known to quietly hint if the Fed is going to pivot, which all of Wall Street is aware of, but it is less obvious for those not in the industry. Pay attention to how he speaks about things like “optimism”, the ability for companies to receive funding (IPOs, debt issuance, etc.), and corporate debt levels.
• Corporate Debt: For those who are unaware, Jerome Powell comes from the world of credit and he was exceptional at what he did. Powell understands that credit dwarfs all else so his focus on consumer and corporate debt has stood out compared to the academics who have been in his seat previously. Powell is aware that corporate junk borrowers took on a lot of short-term debt when they got caught off guard with the fast rate-hiking cycle in 2022. He is also aware that the junk debt they borrowed to cover short terms cash needs are coming due over the coming 12–24 months. He is also highly aware of the amount of variable rate debt that was taken out by consumers when housing prices soared and consumers all of the sudden had access to ample dollars from HELOCs and HE-Loans.

Depending on your experience in markets, what I have stated above may come across as overwhelming or it may read like everything else you’ve read today. My goal is not to tell anyone what they do or don’t know, the only goal I have is to articulate what I am paying attention to. As such, the focus for me today will be on corporate debt and commercial real estate. I don’t expect much from the corporate debt side of things because as I’ve said before, Powell does not want to overwhelm markets or portray a bleak outlook.

After the press conference today, I will write my notes as usual and then read the transcripts from the meeting this evening. If and when I do, I will write a brief follow up piece if there is anything to note. If not, I hope you all have a great Fed Day and look forward to publishing another long form piece tomorrow or Friday.