Why I Sold Tattooed Chef Stock

hey everyone kevin here let's talk about

tattooed chef a vertically integrated

plant-based meat producer with

massive growth potential in this video

i'm going to explain

why the heck i sold this stock

so this actually goes back to february

16th which

happens to be right before this entire

panic and crash we've seen in the

marketplace

and the easiest thing to do is kind of

show you where tattooed chef got caught

up

take a look at this this is my weeble

it's literally sell sell sell sell sell

sell sell sell

a lot of stuff here i mean look at this

snowflake

i mean 40 shares but still snowflake

february 16th

sold tattooed chef here sold 4 000

shares

on february 16th at uh 24.59 a share

tattooed chef began as a stock on

february 16th that i sold

to free up a substantial amount of

margin

i was getting a little bit worried with

some of the things i was seeing in the

market

and i sent a massive alert that i was

selling somewhere around 1.6 million

dollars in

stocks and these were not necessarily

stocks i didn't believe in like for

example i sold

x ping i sold xbing a company i totally

believe in

at six uh or i'm sorry at uh forty five

dollars

and six hundred shares worth why would i

sell x ping

the big goal i had right before this

market crash and i didn't

know that a market crash was going to

happen like three days later or start

three days later

my big goal was i need to get my margin

down i'm sitting at 30 percent

it's too high if and when the market

crash comes i don't want to be going

into it at 30 percent

so i sold off about probably somewhere

around 1.6 1.5 million dollars of shares

it's a lot

of stocks it's a lot of stock uh that i

sold off and tattooed chef was one of

those i have tattooed chef in three

places i have about

uh at today's price i have about twenty

thousand dollars at m1 finance probably

somewhere around twenty five

thousand dollars uh before uh chase was

probably around fifty five thousand

dollars before it's around forty one

thousand dollars now

uh and then i had back then this was

about a hundred thousand dollar a sell

order

back uh in february when i sold it so

my thinking was okay we've sold a lot

we've obviously been through

this crash we've since had this recovery

and

we've had tattoo chef earnings coming up

and i've had this

concern that potentially as we escape

covid and the pandemic that a freezer

foods are going to be a little bit more

difficult

to sell i personally have been eating

the tattooed chef product i've uh i've

ordered it multiple times

and look it's good it's not it's not

something i'm

jumping up and down for yeah you know

it's it's not like oh my gosh give me

some of that

uh brown bread from the cheesecake

factory when you sit down you're like oh

my god i gotta have it you know it's

okay

it's good it's plant-based food they've

got some

things that i love i got some things

that are like yeah i probably won't

order that one again but that's the

point you have choice right

and so i really like the company and i

thought okay well when earnings day

comes around

let's see how their earnings go and as

long as there are no red flags that come

up

i will buy back into tattooed chef that

was my plan to buy back into tattoo jeff

because i previously uh broke down an

analysis that that i thought this stock

would will in the future be worth much

more uh and

things have changed a little bit and so

in this video i'm going to explain

the three particular reasons why i'm

selling tattooed chef

especially and this specifically has to

do with current market pricing as well

okay so reason number one has to do with

advertising

and margins so let's break this down

this is a little bit

tricky so the easiest way to start

breaking this down

is to play you something from the

earnings call

so let's pull up the earnings call now i

listened to the entire earnings call

this is actually somebody who

re-uploaded the

earnings call so shout out to uh to find

fitness finance with alex uh thank you

for re-uploading this but i listened to

this live

when it happened i took notes on the

whole thing and listened to it live

uh and this was the part that i wrote

down as a big question mark

and then i listened to the entire

earnings call again

and i started putting some dots together

and i'm going to explain that bottom

line to you after i play this for about

a minute

let's play it but i think you talked

about advert the

the advertising strategy and i was

wondering if you

turned that on much so far uh in 2021

and

and what has been the response what what

are the learnings with with what you've

seen thus far

i'm going to turn that over to sarah

hello

so you know with tattoo chef we've had

no marketing

um until 2021 of january and in our

first phase we were really

um focusing on banner ads and and just

gathering the data that we need to

to pivot and be strategic with where we

allocate our

our dollars for marketing um we're going

to be pitching

um and launching in march

our commercials which will be going

digitally

and connected to connected tv but right

now we're just still gathering

data because we want to really be

specific and strategic

in where we allocate our dollars

what happened is tattooed chef hired a

marketing firm

to get tattooed chef the brand the

product

really well known in the market space so

that people

when they go to target they get the you

get the feeling that emotion that ads

give you of oh

i've seen that on tv i want to buy that

and that's good in fact they just said

something that was really really good

they said hey we actually haven't

advertised since january or we didn't

start advertising tattoo chef since

january

and remember this is actually really

important because tattoo chef is a new

product

the company has been around for almost

20 years and that's because

they import their their vegetables and

their product from italy

and they have been doing a lot of

private labeled products where

essentially they say

oh hey uh kirkland you need frozen

pizzas no problem here we'll make you a

frozen pizza and they

you know they let like a costco slap

their brand label on it and it goes on i

don't know if exactly it's costco but

that's pretty much what this company has

been before they renamed it

because it was a different company

before it and you can watch my last

video on this

and see all the history about them but

basically they do a bunch of private

labeling

now they're like well hey why are we

doing all this private labeling for

other people

we got the imported vegetables and

product

we got the facilities let's make our own

private brand and so the tattoo chef

brand

is brand new now they've done very well

here over the last six months with

growing their product sales from

basically zero

uh to to actually having sales for the

tattooed chef brand

and i have a little bit of a concern

about where potentially a lot of those

sales have been coming from now i want

to first say

that when this is very important when

you're looking

at doing an analysis of a company it's

very very important

that if you look at year-over-year

metrics like oh something's up 300

or whatever you got to understand where

did it start

did it start at zero or one and then go

to three

right it's kind of like tesla look if

you're going to produce

500 000 cars are you gonna go up uh you

know and you go up to a million cars

year over year that's a hundred percent

growth that's

huge for manufacturing 100 growth huge

huge number but you know if you go back

to the earlier days of tesla and you go

oh they went from 80 000 cars to 160 000

cars

well you know that's a double as well

right but you could potentially look and

say they went from 42

to 160 that's a 4x that's 300

that's amazing ah the landscapers are

back oh it drives me nuts but oh well so

a 300 growth is obviously 4x but anyway

why why does that matter why am i saying

this it matters because

we've got to be careful this is a new

brand

that is what's so important here this is

a new brand that's spacked

and when a company spacks what happens a

company becomes very very popular

potentially for a shorter period of time

because

everybody's interested in the stock

everybody's interested in specs they're

the hottest things since sliced bread on

the stock market

people love specs so you get a lot of

spack attention stock attention to

people who like the stock

they buy the product the problem is we

have not yet

tested this growth amongst in my opinion

the regular mainstream consumer in

response to their ads

why because they haven't done any

advertising great they've got product

placement they're in sam's maybe they're

i don't know maybe they're in costco

they're certainly in target i know that

that's great they've got the connections

to get in the stores that's wonderful

but i have concerns when i hear okay

we're gonna

we're gonna start our advertising

campaign and i have no idea if they're

good at advertising

i think their food is okay you know some

of them i really liked

but i have no idea how effective their

advertising is going to be

it's a complete unknown and don't get me

wrong i love the food

in overall like i would i would

recommend the food to people again some

of the products i would recommend over

others but i have some hesitation that

with tattooed chef

i'm placing a bet on the advertising

company's ability

to not only spend their dollars properly

they're talking about digital ads

they're talking about connected tv ads

i mean fine look the company's got to

advertise in fact if you go over let's

jump on over to

uh deloitte here for a moment so if we

jump on over

to deloitte a report that they put

together

on uh marketing budgets by industry the

biggest

marketer by industry is the consumer

packaged goods segment so here i am

doing a fundamental analysis on this

company you know three four months ago

and i'm like these numbers are looking

sick

and i i didn't even realize at that

point one of the reasons potentially the

numbers were looking so sick

was because the company was getting all

this free advertising through spac

world well now we got to put a big fat

advertising budget in

and it makes me a little bit more

nervous that's because previously i was

looking at some of their margins i'm

like

you know wait a minute like there's some

real growth potential here these margins

can

really come up uh oh but now i realize

wait a minute wait a minute wait a

minute

we haven't even begun spending money yet

okay

so okay fine but i mean who cares like

if the valuation's great who cares right

well that's where it's worth looking at

some numbers now i'm

not gonna look i did a 30 minute video

on this in

my private course yesterday which if you

don't know about it it's linked

down below i've got a program on the

stocks and psychology money and i teach

fundamental analysis my way of doing

fundamental analysis

you don't have to agree with my opinion

of fundamental analysis

but at the very least you probably want

to pay attention like you don't even

have to like me but at the very least

pay attention to some of the arguments

and if you stay in the stock i

encourage you to i think the stock's

going to go up in the future

i'm going to explain why i sold though

in a moment uh and

all of these reasons compound uh so so

pay attention to some of things okay so

these are the actual numbers again i'm

not gonna go like crazy into detail on

this these are the actual numbers here

uh then what i did is i made some

adjustments because

the way they reported the numbers was a

disaster it was very very confusing

for example they reported operating

expenses of 7.8 million dollars and look

in the earnings call even they said we

know the numbers are kind of a disaster

this

this month or this quarter because of

the things that happened with spacking

in that

and say they put in about 3.4 million

dollars in stock based uh

compensation so what i did is i backed

out that 3.4

they're going to continue to have their

legal fee costs for being a public

company so i didn't adjust those out

i took out the stock based compensation

uh to to understand kind of what kind of

operating expenses

uh they're they're running at here and

if they would have been profitable

and if i remove this benefit and or

sorry this stock based compensation cost

and i remove their income tax benefit of

a 41 million dollars which basically

came from them converting from an s

i'm sorry from a yeah from an s corp to

a c corp they got this big stepped-up

tax basis that let them take a massive

write-off

good for them hey you know they took uh

they took a quarter

that uh that was basically going to

potentially be a money

losing quarter because if you don't take

out uh

the stock-based compensation they would

have lost money that quarter and that

income tax benefit was really really

good to keep them in the green and

substantially in the green

but when we adjust both of these things

out the stock based compensation

and the uh the tax benefit they got from

a transition

i think they probably had a quarter of

about four cents of earnings per share

which is actually very good because they

were only uh estimated

to earn three cents per share so that's

fine that this is all the good

uh and we're not going to go crazy deep

into all of this here but this is where

some of my concerns come from so

their 2021 projection is 222

mill in ref the uh they are also

projecting that they can get to 20 to 25

margin for the product now they do

not include in their margin advertising

that is a separate line that comes in

under operating expenses

they throw advertising for the product

in sg a which is fine a lot of companies

do it some people put in a cost of goods

sold some people put it down there

you can do whatever we want you just got

to know those things so okay fine

i'd like to go conservative so i go with

the 20

here that would mean that this company

is bringing somewhere a gross profit

of around 44 mil then

the company projects this they project

that their earnings before taxes

uh interest taxes and amortization will

be between eight to ten million dollars

on 44 mill this was a little concerning

to me because then i could backwards

engineer and go wait a minute

that means you're expecting to spend 36

million dollars

which means you're expecting to double

your

operating expenses in 2021 you're going

to double your expenses

but you're nowhere close to doubling

your revenue maybe you're going to go up

40

in revenue that's your projection so

double the advertising or double

the operating expenses because of all

this crazy advertising you're going to

do to get a 40 boost in rev now

it's possible that with food maybe

people come in they see the ad and then

they love the product okay it's part

look

if you get advertised too like if doc

you sign a sas business

advertises to you and you're like i'm

gonna try this docusign out and you're

like oh

damn this is a nice product you don't

need to be advertised to again

you're done you know you're like sign me

up i'm using docusign for everything um

game this is freaking dope

uh you don't need to be advertised to

anymore like the the churn rate is very

very low

that's not true in food in food people's

taste chains which you have to continue

to be advertised to

food is notorious for being the lowest

one of the lowest margin industries that

exists and this is not to say again that

tattoo chef isn't going to go to the

moon i think the stock is

look i think the company's a great

company i want people to make money

investing in tattoo chef

and i'm going to get to why then would i

not buy back in after having sold

you know over a hundred thousand dollars

before this market crash

which obviously i sent out all of the

alerts i had a big spreadsheet of all

the sales that i did to reduce my margin

and i explained that

uh but anyway so uh let's go back to the

spreadsheet here

what what else is going on what are we

seeing well so going back to the

spreadsheet here

we got these massive expenses and not

necessarily massive revenue and those

are their projections

now maybe they'll have the 10 mil in

ebitda which

they've suggested but if they have these

numbers then they're really only going

to bring

somewhere well actually they projected

it i don't even have to calculate it

they said it

they projected we're gonna have two and

a half to five million dollars net

so even though i went conservative up

here with the margin with 20

which keep in mind right now they're at

like 16 and and

so they're 16 on their gross profit

margin right now

and their suggestion is that hey when we

when we get more products we're gonna be

able to

increase this margin fine i can drive

with that you got more products i know

you're putting your r d into that but

you can get products to shelf fast

uh fine maybe you can get your margin up

to 20 25

that's great maybe the 25 percent ends

up being the game changer

but they're projecting two and a half to

five million dollars of net income for

2021.

this is very low this is 2.25 if i go

with the top the big number

two and a half percent uh is five

million dollars in net off of the 222 in

revenue

that's very very low with my projections

the first time i analyzed this company

i thought they would be able to at least

bring five percent to the bottom line in

2024

and now i'm gonna revise that down and

just use four percent

but not only that i also thought their

operating expenses

would go down with scale but i totally

missed that they

weren't and made it call it my fault i

don't care blame me it's fine

uh i totally missed now wait a minute

their big advertising boom is coming in

2021 now maybe

maybe the advertising is really

successful in this company moons okay

totally entirely possible totally

possible then then you know what meet

kevin was wrong it's totally fine

but if we bring four percent to the

bottom line in 2024

what does that mean well that means

we've got 27 cents of earnings per share

and they're going to have way more

shares obviously in the future right now

we're only using 73 mil shares but

that's just what we're going to use for

our projection right now

that puts this company at a 75 times

forward p e ratio at this projection

could we call it call the projection low

right maybe 30 percent growth compounded

is too low

maybe if they advertise like crazy

they'll have more growth but wait a

minute

the company themselves is suggesting

that on their first year as essentially

as a startup because their startup

even though they've been around for 20

years tattooed chef the brand

most people don't know about tattoo chef

unless you're in the stock

most people don't know about tattoo chef

yet so in their first year they're gonna

double

well they're gonna yeah double their

operating expenses to get 40

growth i think 30 growth for the future

years is reasonable

who knows maybe they can double you know

maybe

and that's not what and i'm not look the

bloomberg terminal i don't have it up

right now i'll try to pull up the

bloomer terminal moment

bloomberg terminal doesn't project more

than 500 million in 2024 either

now that doesn't mean that they're

they're right and it doesn't mean that

i'm right i'm just saying like 30

these are the numbers i'm using you want

to play with different numbers

more power to you i and and i appreciate

you watching this

uh you know we're talking about numbers

and a boring spreadsheet here and it's

like we're having a

fight over oh we should be using 40

compounded you know like

i think we're all the same page like we

all want to learn what's

going on here right so for me a forward

p

e of 75

folks i'mma buy square i would rather

buy square which has a forward

e of 75 per my numbers in my analysis

i would rather invest in square because

guess what happens at square folks

square comes out and says yo we got

title the music streaming service we're

going to monetize every

uh song on this platform with an nft

roll in the dough folks i am not

going to spread myself out too thin when

i could concentrate into stocks that i

have higher conviction in what do i have

highest conviction in

square playing uh cash out bitcoin

reopening play for companies coming out

with

with banking services credit cards and

potentially nfts

at 70 you know i think it's 72 times

forward 2025 earnings you know for

for what we're paying uh now or paying

a forward pe of 75 for a food company

that i know is low margin that has

untested

advertising uh it's untested they just

started in january

uh and and potentially well i i know is

in a low margin industry but potentially

just has to continue to advertise

to continue to get those clients to keep

coming back and back and back it's not

like you're advertising

uh you know a tesla or once you get your

first test like you get your car and the

cool thing about tesla is

they're not even advertising right like

that's what i would rather have my money

there

in some sense so i don't to me

look i think tattooed chef if i was

going to pick a food company

i'll certainly buy it over very good

food company

which very good food company i did hold

for like two weeks and i did sell that

they had some really really good

production numbers you know maybe they

can get to some really really big fat

production

uh with with some of the new

partnerships and plants they've got

coming up i'm excited

about that for the very good uh you know

butcher very good food butcher

uh but uh yeah

i mean look at this like i'm projecting

like crazy here but if they get to 20

mil in revenue

they're selling for 22 times rev

tattooed chef at 22 mil 2021 that's 7.8

times revenue is what they're selling

for

beyond meat is only selling for 5.65

like uh on these revenue numbers i'm

actually getting a better deal at beyond

me now look

tattoo chef if if they

were able to keep this growth up that

they had when i first invested in them

without having to start a new

advertising campaign as a new company

then i think margins could compress they

could they could increase their profit

margin on the product they could

decrease their expenses

as a share of the company's operations

but

it's too much of a risk for me and so

with that said

i would much rather be investing in some

of my other companies

and i'm certainly not going to go into

margin to add back into tattooed chef

at this point that's just my take and

this doesn't mean that the stock is bad

it just means i think i have a better

opportunity somewhere else

that's it especially at today's prices

or i should really say like

monday and tuesday's prices that's the

last time i bought and it was tuesday

was the last day i bought

uh tesla end phase etsy right these

these are some of the ones that i bought

obviously uh even those purchases are

doing very well right now

uh but you know i'm not a short-term

player

you know that i'm a very very long time

unless i'm swing trading that's

different but that's usually with a very

small part of my portfolio

that's been doing very well as well but

uh for for this company look if i'm

going to go long

i'd rather go along with something else

i do still hold

about uh right now i've got 18

in m1 finance which i will sell uh m1

finance was down yesterday and haven't

actually sold it yet

uh and then i do have about forty

thousand dollars in jp morgan honestly i

don't know that i can actually sell my

forty one thousand dollars at tattoo

chef at jpmorgan

because all my stocks are frozen there

uh because they

they basically what they do is they

freeze your account and they're like

okay cool we'll give you a margin line

of credit on this

but it doesn't work if you want to

actively trade i'm like i don't want to

actively trade just leave it all there

and they're like okay cool so i'm not

sure that i could get that 40k out of

there

but i'm not worried about it i'll leave

it there i'll leave the 40k there i'll

sell my m1 finance it's not gonna be

part of my pies anymore

but this isn't like a breakup like if i

was i'm not worried about this company

like i don't think this company's gonna

fall in value

it's certainly not i don't think it's

worth less than twenty dollars a share

uh i i do think this company has

potential to be you know a thirty forty

dollar stock do i think it's a sixty

dollar stock anymore no

is this a thirty forty dollar stock in

the future yeah maybe

maybe uh but in the meantime you know

what's what's tesla square going to be

at

when when that time comes so that's my

pov

uh food too low margin advertising new

advertising look they can hit it out of

the park or not

i don't know so my thoughts thank you

very much for watching uh hopefully you

found this

insightful if you did consider sharing

subscribing and folks

see you next one

[Music]

you