Business Overview:

• Dual segments: Sally Beauty Supply (SBS, $2.11 bn FY‑24 sales) serves DIY customers & stylists; Beauty Systems Group (BSG, $1.61 bn) supplies licensed professionals.

• Format footprint: 3,129 SBS stores & 1,331 BSG locations at FY‑24; 16 m loyalty members; 652 field consultants.

• Mix: hair colour 40 %, hair care 24 %, styling tools 17 %, nails 10 %; 50.9 % gross margin.

• Differentiators: 34 % owned‑brand mix in core markets, hair‑colour expertise, omni channel with 10 % e‑com.

Competitive Landscape

SBH faces mass beauty retailers (Ulta, Target, Amazon) and pro‑wholesale rivals (SalonCentric/L’Oréal). Its depth in colour, stylist relationships and exclusive brands create defensibility, though pricing pressure persists.

Financial Performance & Quality

• FY‑24 revenue $3.72 bn (‑0.3 %); Q2‑25 YTD sales $1.82 bn (‑1 %).

• FY‑24 operating margin 7.6 %; EBITDA ≈ $393 m.

• Cash from ops $247 m; capex $101 m → FCF $146 m.

• Net debt/EBITDA 2.1×; liquidity $575 m.

• Fwd P/E at 4.9x

Capital Allocation & Governance

• Buy‑backs: 5.1 m shares ($60 m) FY‑24; $521 m authorisation left.

• Fuel‑for‑Growth restructuring targeting >$40 m annual SG&A savings by FY‑26.

• Board refreshed; leverage target <2.5×.

Risks:

• Macro salon traffic
  • Impact: Salon visits fall when disposable income tightens; a 1 % drop in stylist traffic shaves ~20–30 bps off comps.
  • Monitoring/Mitigation: Track BLS salon‑employment data and card‑spend trackers; deploy loyalty‑app offers to protect share.

• Supplier concentration
  • Impact: Top‑10 vendors account for ~55 % of COGS; loss of a marquee brand (e.g., Wella, Olaplex) would compress assortment and gross margin.
  • Mitigation: Multi‑year supply contracts with volume rebates; accelerate owned‑brand penetration to 40 %+ by FY‑27.

• E‑commerce price transparency
  • Impact: Mass‑retail SKUs can be cheaper on Amazon, eroding SBS basket size.
  • Mitigation: Emphasise pro‑only SKUs and deep colour assortment unavailable at mass; dynamic promo engine tests price elasticity weekly.

• Leverage / refinancing risk
  • Impact: $1.1 bn gross debt (~2.1× net‑debt/EBITDA); 2027 notes (8.75 %) are callable in 2025—higher coupons could shave 50–70 bps off FCF margin.
  • Mitigation: Preserve $575 m revolver capacity; keep payout ratio <60 % of FCF until net‑debt/EBITDA <1.8×.

• Execution on store optimisation
  • Impact: Plan calls for 350 closures + 500 remodels; poor sequencing could cannibalise local sales faster than opex savings accrue.
  • Mitigation: Pilot closures in overlapping ZIPs, migrate customers online with geo‑targeted ads; disclose comp lift vs control stores each quarter.

Catalysts & Outlook

• Fuel‑for‑Growth (FFG) SG&A savings
  • Target: $70 m gross / $40 m net run‑rate by FY‑25. Every 100 bps of SG&A saved adds ~$0.15 to EPS and compresses net‑debt/EBITDA by 0.1×.

• Owned‑brand expansion
  • Mix shift from 34 % → 40 % by FY‑27 should expand gross margin ~200 bps.
  • Key launches: BondBar colour care (Q4‑25) and Ion Luxe appliances (Q2‑26).

• Digital growth — LCOD & marketplaces
  • Local Colour On Demand same‑day delivery live in 1,200 cities; pilot markets show +5 % comps and +80 bps margin.
  • DoorDash & Instacart integrations roll out in Q3‑25 to widen last‑mile reach.

• Continued buy‑backs
  • $521 m remaining authorisation ≈ 52 % of shares at $8.50. Management targets $150 m in FY‑25, retiring ~10 % of float p.a. → ~11 % EPS tailwind on flat EBIT.

• Potential strategic interest
  • Specialty beauty cashflows at 4× EBITDA screen attractive; PE firms (Sycamore, Apollo) and trade buyers (Ulta, Coty) have historically paid 7–8×.

• Valuation path
  • Bear: $6 (4× on $350 m EBITDA)
  • Base: $16 (6× on $400 m)
  • Bull: $26 (8× on $425 m)

Conclusion

• High‑margin niche leader mis‑valued as secular decliner.

• FFG cost saves, owned‑brand mix lift, digital convenience, and aggressive buy‑backs can raise EBITDA from ~$385 m → ~$425 m within 24 months.

• At today’s 4× EV/EBITDA the market prices SBH for terminal decline; reverting to peer‑median 6× yields ~90 % upside, while a take‑private at 8× unlocks ~200 %.

• Risk‑reward ~5 : 1: Accumulate $7–$9, trim $15–$18, reassess if comps <‑3 % for two consecutive quarters and FFG savings slip past FY‑26.

Autohome is China’s dominant online automotive platform. With 223 million registered users and 77 million mobile DAUs, it sits at the cross‑roads of OEM marketing budgets, dealer CRM systems, and a swelling New‑Energy‑Vehicle (NEV) data trove. The shares trade at 0.08 × EV/Sales and 11 × 2024 P/E, while the balance sheet is stuffed with RMB 23.4 bn (US $3.2 bn) in cash and short‑term investments—97 % of market cap. We see an attractive risk‑reward skew as NEV data products scale, offline “Autohome Space” stores feed leads, and a fresh US $200 m buy‑back soaks up liquidity.

2 | Business & Structure Snapshot

Autohome generates revenue from three pillars:

1. Leads & Dealer SaaS (≈40 %)—subscription CRM, Smart DCC and Compass tools that plug into 28 000+ franchised dealerships.

2. Data Marketplace & Transactions (≈34 %)—VIN‑level analytics, used‑car auctions via TTP, and the growing “Autohome Space” offline network.

3. Advertising & Media (≈26 %)—targeted campaigns for 101 OEMs, underpinned by a vast library of 32 484 professional contributors and user forums with 223 m registered users.

Because foreign ownership of internet content is restricted, Autohome operates key assets through VIEs. Revenues from VIE entities contributed 11.5 % of 2024 net revenues. While legally tested only sparingly in China, the structure has survived 15 years and could unwind under Beijing’s pilot schemes—an upside catalyst.

3 | Why Buy Now? Five Pillars

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In this post, we consolidate our daily tracking sources, fundamental research, and management insights into a cohesive investment thesis on Sohu.com Ltd.

Sohu.com Ltd. is one of China’s earliest internet pioneers, founded in 1996 by Dr. Charles Zhang. Today, Sohu operates a diversified portfolio spanning:

• Media & Portal Services: Flagship website Sohu.com (portal, news, search) attracting over 500 million monthly active users, offering content distribution and advertising solutions.

• Online Gaming (Changyou): Wholly owned subsidiary Changyou (NASDAQ: CYOU) develops and publishes PC and mobile titles, including the long-running MMORPG "The Legend of Mir" series and the mobile spin‑off TLBB.

• Video & Community: Platforms such as Sogou Video and Sohub video-community features that enhance engagement and loyalty.

• Emerging Tech: Early-stage investments in AI-driven recommendation systems, cloud services, and international game publishing.

This breadth provides Sohu with multiple monetization streams—advertising, game subscriptions and in‑game purchases, and ancillary services—while its strong cash position and real‑estate holdings offer a deep‑value net‑net investment profile.

Our analysis draws on:

• Daily App‑Rank Monitoring via Qimai Data for TLBB Mobile performance.

• Advertising Sentiment Gauges from QuestMobile & CTR to track media-platform health.

• Deep‑Value Financial Model including SOTP, DCF, and peer multiples.

• Management & Founder Profile to assess strategic vision and execution risks.

2. Investment Summary

Sohu trades at an EV of –USD 1.4 bn, implying a pay-to-own net cash and hard assets at a steep discount:

• Net Cash: USD 1.21 bn vs. Market Cap USD 316 m

• Real‑Estate Uplift: Four Beijing offices book at USD 253 m; market value USD 600–800 m

• Changyou Games EBIT: USD 196 m on USD 506 m revenue (39% margin)

Target Price of USD 32 is derived by applying a 60% haircut to our sum‑of‑the‑parts equity value of USD 100/ADS due to the lack of CEO willingness to sell the media business added with its strong control.

3. Business Overview

Sohu Media Platform (2024 revenue USD 92 m; operating loss USD 306 m) via VIE structure.
Changyou Games (2024 revenue USD 506 m; EBIT USD 196 m) fully owned WFOE.

Key Risks: VIE opacity, tax contingencies, legacy media losses.

4. Industry Context

• Online Gaming: RMB 303 bn market in 2024 (+4% YoY), mobile 76%, regulatory headwinds easing.

• Digital Advertising: Legacy portals face CPM pressure from Douyin/Kuaishou; QuestMobile & CTR indices triangulate trends.

5. Financial Analysis & Valuation

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The healthcare sector has been a battleground of regulatory shifts, cost pressures, and evolving consumer demands since Trump’s inauguration. Yet, within this landscape, Centene Corporation ($CNC) stands out as a compelling re-valuation opportunity.

Here’s why I believe $CNC presents a strong bullish case:

1. A Dominant Player in Government Healthcare

Centene operates as a leading managed care company with a dominant presence in Medicaid, Medicare, and Affordable Care Act (ACA) exchanges. With over 28 million members, it is one of the largest Medicaid providers in the U.S., benefiting from federal and state funding. As Medicaid expansion continues and government reliance on private insurers grows, Centene is poised to capture more market share.

2. Medicaid Redetermination Risks Overblown

One of the biggest concerns surrounding Centene has been the Medicaid redetermination process, where states reassess Medicaid eligibility following the expiration of pandemic-era enrollment protections. This has led to some member attrition, but the impact appears to be less severe than initially feared.

Additionally, many of the members losing Medicaid coverage are transitioning to ACA exchange plans, where Centene remains a leading provider. This partially offsets the enrollment losses, reinforcing the stickiness of its customer base.

3. Trump's Risk with Direct Order Government Entities (DOGE) for CNC

One of the key risks for Centene is the Trump administration is the prospect of Direct Order Government Entities (DOGE) being expanded to increase price competition in government healthcare programs. Trump has historically been vocal about reducing costs in government healthcare, favouring policies that could drive pricing pressures on managed care providers like Centene.

If Trump pursues Medicare Advantage reforms or expands direct government healthcare contracting, this could put downward pressure on CNC's margins. However, Centene’s extensive Medicaid and ACA footprint, which are politically more difficult to overhaul, provides some insulation. Additionally, Centene’s cost-control initiatives and scale advantages should help mitigate potential pricing headwinds from increased government competition.

While Trump's policies pose a headline risk, the structural demand for managed care solutions remains robust, particularly as state-level decisions play a more dominant role in Medicaid expansion and ACA administration. Thus, while the risk is real, Centene's diversified positioning should help absorb any potential policy shifts.

4. Margin Expansion & Cost Control Initiatives

Over the past few years, Centene has embarked on an ambitious margin improvement program, focusing on reducing administrative expenses, optimizing claims management, and divesting non-core assets. The company is targeting a 15% adjusted operating margin by 2025, a significant improvement from its current levels.

Key drivers of this margin expansion include:

• Operational efficiencies: Streamlining costs and eliminating redundancies in acquired businesses.

• Medical Cost Management: Leveraging data analytics to control costs and enhance underwriting discipline.

• Divestitures: Shedding non-core assets to focus on its most profitable segments, such as the recent sale of its international business.

5. Strong Cash Flow & Shareholder Returns

Centene’s business model generates robust cash flows, which are being strategically deployed to enhance shareholder value. The company has consistently used excess capital for:

• Debt reduction, improving financial flexibility.

• Stock buybacks, returning capital to shareholders while maintaining a disciplined balance sheet.

• Strategic acquisitions, reinforcing its presence in key markets.

With a projected $5 billion in operating cash flow in the coming years, Centene is well-positioned to fund both growth and shareholder-friendly initiatives.

6. Valuation Upside & Underrated Growth

Centene is trading at one of the lowest earnings ratios in its history which signals that investors are very pessimistic. Despite its strong fundamentals, Centene trades at a discount to its peers in the managed care space. At ~8x forward earnings, it offers an attractive entry point compared to larger competitors like UnitedHealth Group ($UNH) and Elevance Health ($ELV), which trade at higher multiples.

Key valuation arguments:

• Earnings Growth: EPS is expected to grow double digits over the next few years.

• Stable Revenue Base: With Medicaid and ACA membership driving recurring revenues, Centene’s financials remain relatively insulated from economic cycles.

• Multiple Expansion Potential: As execution on margin improvements progresses, there’s room for valuation re-rating closer to peers.

• Share Repurchase Program: They have repurchased over $2B in 2024 and expected to repurchase $3B or 10% of the market cap in 2025.

Centene at these prices could very well deliver some great returns in the following years but investors need to remain patient and manage the increase in volatility.

Disclosure: I am long Centene at 56.7.

Before delving into the trade and its underlying rationale, I want to first outline my macro perspective on the future of the EU and UK. Recent developments suggest that Trump is pushing for reciprocal tariffs and a reduction in US military spending within NATO, which could significantly reshape Europe’s economic and political landscape.

Macroeconomic Outlook for Europe and the UK

In the short term, I expect these geopolitical shifts to trigger an economic shock, dampening growth across the region. However, in the long run, the more profound effect will be a sharp increase in public debt across Europe. As NATO funding gaps widen, European governments will likely be forced to boost military spending, putting additional strain on fiscal budgets.

From a monetary policy standpoint, I anticipate that both the European Central Bank (ECB) and the Bank of England (BoE) will face political pressure to revert to accommodative policies, easing back to pre-pandemic levels. With fiscal deficits expanding to match US military spending as a percentage of GDP, central banks will likely be coerced into keeping borrowing costs low to sustain rising debt levels.

How Will This Be Funded?

Governments have two primary options:

1. Raising taxes – Unlikely, as tax rates in the EU are already high, leaving little room for further increases without political and economic repercussions.

2. Issuing more debt – The more politically palatable option, but it comes with significant interest rate risk in the current economic environment.

With long-term rates (+20y) in the UK exceeding 5%, I see this as a “risk-free” trade in the current economic cycle. Unlike the EU, the UK is in a better position regarding tariffs, which should reduce inflationary pressures over time. While the UK’s inflation trajectory has been significantly worse than the EU’s in recent years, I expect it to normalize to historical trends, remaining roughly 0.5% above EU inflation in the long run.

This presents an opportunity to position in long-duration UK bonds, particularly given the high real yields and the likelihood of an eventual monetary policy pivot as the UK and EU grapple with fiscal expansion and slowing growth.

I would be overweight this trade given the thesis above and add short position equal weighted size of 30 Year duration German bunds as they look compelling at 2.5% given the upside room on inflation and growth.

Disclousure: I am long 80K at 86.6 and at a yield of 5.1% and short 80K at a yield of 2.6%. I see a path for the yield to drop to 4% as a base scenario and to 3% in a recession scenario.

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I wanted to use this substack to share my research thesis on mispriced stocks in which I am personally investing. The research pieces will be mostly free, but my proprietary risk model and trade sizing strategy as well as some “top” investment picks will be available only to paying subscribers.

Now I briefly introduced myself & this substack, I wanted to go over the 2 most important factors in investing (in my opinion) which are risk management & trade sizing. It really doesn’t matter how good your research thesis is (believe me I learned the hard way) if you do not follow a risk model and an appropriate trade sizing. Understanding price action is equally important, price action hints to us if our thesis might be correct or not. While markets can remain disconnected from fundamentals it’s not our battle to stick to a losing trade. It is inherently human to try and catch the “bottom” but in investing it is simply a losing strategy and mindset.

That is why I spend a lot of time developing a risk model that would work for my investing strategy. While it is not a perfect model (they don’t exist) it has a great degree of accuracy at determining changes in trend, as ultimately stocks move on trends. I wanted a risk model that would predict trend changes but if wrong by the price action have a minimal loss. This would allow me to have a plan and a reference to trade sizing (point 2) for my investment research picks and not suffer big losses when the market goes against my thesis.

For instance, pick AMD. Since 2021, AMD has only gained 5% of its value, but following every trade of my risk model would have caused you to make a 71% net return (note: it does not short).

It is also important to note that this risk model is not perfect. It is designed to best predict changes in trend and will never outperform a buy-and-hold strategy of stock at all-time highs (I needed to clarify that). That is not its purpose. My proprietary risk model and other experimental quant strategies will be available to subscribers in full detail.

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Moving on to my trade sizing rules:

#1. Start with 10-15% of the full size for that position. Full size for an investment is usually 10% of my portfolio. So start with 10% of 10% so that you are in the trade, then have a mental 5-7% stop loss. If the trade goes your way then I would wait for my risk model buy alert and would size full slowly in the next trading weeks.

#2. Do not try to catch falling knives. I know this has little to do with trade sizing but it is equally important to understand that falling knives o

ccur when large number of shares are being sold without much buying demand. Usually, that kind of selling pressure persists in the short term leading to lower prices even more.

#3. Price Action matters. While everyone tends to think they are smart or their research is accurate, markets tend to at some point adjust and reflect the fundamentals of a company. Therefore, do not end up holding a bag despite a good investment thesis, you can always re-enter a stock.