In short: Deiya. A holding, and the worked example of the SBC screen: growth has slowed but stock-based comp is still extraordinarily high, so it "screens quite poorly" on GAAP — which is exactly why it was mispriced. "It was so beaten up… everybody is pricing this thing for complete decapitation. It was very clear the market was wrong on the probabilities." Up 50–60% since he discussed it on the show in April.
Sprout Social sells software for managing a company's social-media presence, and its shares had been priced, in Deiya's words, "for complete decapitation" by AI. He thought the market had simply mis-set the odds, said so on this show in April, and the stock is up 50–60% since.
The transferable idea is why it was mispriced. Sprout pays a lot of its staff in stock. Accounting rules count that as an expense, so the reported profit looks terrible and the company fails most automated stock screens — which means the funds and quant models that buy on screens never even look at it. But stock-based pay behaves like any other variable cost: as a company matures, it usually shrinks as a share of revenue. When it does, reported profits jump sharply without the underlying business changing at all. Buying before that normalisation is the trade.
29:50Which is one of the reasons, like a company we own named Sprout, which is one of the reasons why it screens quite poorly. But I would — by the way, Sprout, you talked about it with Max in April. It's up like 50 or 60% since then. So, — it was so beaten up. It was such an easy call to make. This thing, everybody is pricing this thing for complete decapitation.
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