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116 - Learning from mistakes you narrowly avoid $MCLDF

The DIY Investing Podcast

Release Date: 04/27/2021

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More Episodes

Mental Models discussed in this podcast:

  • Confirmation Bias
  • Skin in the Game

Please review and rate the podcast

If you enjoyed this podcast and found it helpful, please consider leaving me a rating and review. Your feedback helps me to improve the podcast and grow the show's audience. 

Follow me on Twitter and YouTube

Twitter Handle: @TreyHenninger

YouTube Channel: DIY Investing

Support the Podcast on Patreon

This is a podcast supported by listeners like you. If you’d like to support this podcast and help me to continue creating great investing content, please consider becoming a Patron at DIYInvesting.org/Patron.

Show Outline

The full show notes for this episode are available at https://www.diyinvesting.org/Episode116

mCloud Technologies - $MCLDF

  • SaaS company
    • Trading at just 1x expected revenue
  • Energy efficiency (Oil and Gas Plant efficiency)
  • Green Energy (Wind Turbines, HVAC efficiency)
  • Uses AI

Problems:

  • Cash flow negative (Presumably in the name of growth)
  • Regular ongoing stock issuance and dilution
    • Both shares and warrants
    • "An assumption that this is the last time."
  • Very promotional management (with skin-in-the-game?!?)
  • "Uplisting to the NASDAQ" talk
    • A lot of examples of SaaS names going from 1-2x revenue while on the Canadian TSX market to 10x+ revenue on the NASDAQ in the US
    • Still hasn't occurred many years later
  • Mergers and acquisitions using stock (Not cash, because they don't have any)
  • Growth targets include non-organic growth (REALLY BAD)
    • Dilution is required, but it makes it impossible to model per share returns
  • Exit: Liquidity event needed for the payoff (Either sell to another company or an uplisting)

Lessons Learned:

  • Don't buy promotional companies
  • Don't buy companies that dilute
  • Don't buy companies that can't self-fund growth
  • Insider ownership does not equal skin-in-the-game
  • Be wary of 'uplisting' as a catalyst

Summary:

Investors need to constantly be wary of confirmation bias and stay alert for possible red flags. mCloud Technologies stock $MCLDF taught me this lesson. Don't buy promotional companies that dilute shareholders and can't self-fund growth.