Dissecting Capital One, Netflix, and Wall Street's Favorite Metrics

0:00I've been wanting to believe too good to be true stories a little more lately. just because we're seeing companies like you've never seen before do things we've never seen like NVIDIA and Palantir. But at the same time, we have to remember finance is a very long track record and I have to continually remind myself if something looks too good to be true. The perfect lunch combo. That first bite of your favorite sub followed by ice cold Pepsi. Add a couple of friends and now that's next level. Suddenly, the laughs get louder, the stories keep flowing, and the food tastes better. Because Pepsi brings out more flavor, more fun, and more of the moment.

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1:18You're tuned in to the Investing for Beginners podcast. Investing for Beginners podcast. The show for the long-term investor. We cut through the noise to focus on what works. compounding discipline and the conviction to buy wonderful businesses and stick with them your path to financial freedom start now and welcome back to the investing for beginners podcast everybody my name is steven morris and across from me is the excel guru andrew saylor and i say that because almost everything andrew sends me is on an excel sheet And if you know me, you know that I absolutely despise Excel, as most of you do, and rightfully so, because Excel is stupid and sucks.

2:10But no, so Andrew sent me a list on an Excel sheet. And Andrew, what am I looking at right now? So we're looking at stocks that have broken out, not price, but revenue-wise. So basically, you're moving along, you're growing, you're growing, you're growing. Bam! You just exploded like a rocket ship. And I don't know how common this is because I haven't run a screen like this. This is actually my first time running a screen like this. But what I send you, like close to 30 companies. So I think it'd be interesting to kind of discuss, like, is this a sign that the economy is kind of finally ticking upwards?

2:57or is this just noise that there's always just a random set of companies that have this happen to them? But what I did to run the screen, which I think could be a fun screen for people to run to find ideas for stocks, is using fiscal, I looked at revenue one year, revenue three year, and revenue five year. And I just visually looked for companies where revenue one year was a higher growth rate than three and five. And so the most egregious offender on this list is actually Capital One. And that one's weird because they just did an acquisition. So I feel like that one's not valid. But the second one on the list is Palantir, which they're growing now.

3:41They grew 79 % year over year. And they're already growing really, really fast. They're like growing 40%, 50 % a year. So a lot of names that to me wasn't super intuitive. So for example, Citigroup, Bank of America, T-Mobile, these just super old dividend boring stocks that you would never associate with having any sort of growth are breaking out and breaking out relative to their history. So 9 % growth for Bank of America is huge because they're usually growing around four or five or six. But still, it's something that kind of catches my eye. And so my first question for you, Stephen, because I sent this to you with very little context, what were your initial thoughts and where would your mind go next if you were trying to sift this list?

4:38We all have different techniques for sifting through lists of ideas, but what would be yours to sift through a list to try to get to something you'd want to buy here?

4:51I mean, the very first thing I noticed was, and I wasn't like super familiar with it because it's all tickers. So COF, the first thing I noticed was one year growth for COF was 102.40%. And I'm like, what the heck company is COF? And so I Googled it. It's Capital One Finance, as you said. and how in the world is their one year growth that high it just doesn't make sense and like you said Palantir is crazy high I lost them on the list now because it's not in order but they're crazy and how like it just doesn't make sense so So my first thought was like, what screen is this? Like, what am I supposed to be garnering from this other than just I need to do research into some of these companies and figure out what's going on?

6:02Oh, there's Palantir, 67.70%. So, I mean, that was the, you ask what I noticed. That was the first thing I noticed is that gigantic 102. And for clarity, Palantir is number two at 67. So it is a giant gap between the growth percentages for that one year. And that is nuts, man. And Capital One. It's not something to do with AI or cloud. It's Capital One finance. So why? Did you figure out why? I did not. So maybe that's one we move on from. So one of the things when you use tools, you do have to be careful that there can be mistakes. I saw one with a tool that I really love where they got met as growth rate wrong.

6:57And I ended up like arguing with AI about it because AI was like, I know the math isn't intuitive, but mathematically, this is why that number is lower than you think. And I'm like, no, bro, I'm in Excel. You're wrong. But it's hard to convince the AI to change their ways. Anyway, one of the big takeaways I had is, Capital One kind of fits in this, the banks are seeming to have some momentum. And so one of the things I've always heard for a long time being in the stock market is people say that the banks kind of lead a economic recovery. And I guess it makes sense. Like when, when, when, when you see things take off, the banks will, will benefit.

7:48But I feel like I've seen false starts like this before. I remember getting really interested in banks around 2021 ish, I think, or 20, 2022. It, they, they had like a strong period and then it didn't lead to anything. So one of the things that I think beginners need to be cognizant of and be cautious about is just because there's a really catchy saying about, oh, if the banks do this, that means the economy is doing that. Or if tech starts to crash, that means a bigger market crash is coming. Whatever the catchphrase or narrative is, I think we need to be really careful about blindly applying that to our entire mentality about where our stock portfolio is, where we think it can be, where the economy is, where we think it's going.

8:50It's one of those things that the numbers can really just open your eyes to the idea that the world can change pretty quickly. And that's another thing I got from this list is like, if all these stocks are taking off, something's happening and something is changing. And so as investors, it's our responsibility or opportunity to do the deeper research and see whether some of this is sustainable and is some of this just kind of noise in the data set. But a couple other companies are very much related to the whole AI boom. So it makes sense that these companies are higher. But we have Corning Incorporated, ticker GLW.

9:38They do like the fiber optic cable and stuff like that. I know all of that's been through the roof. And then Dell Technologies, just with everything going on with memory and whatever else. So some of these stocks make sense. Other ones just don't make sense. So again, I don't know. Were there any other names that kind of caught your eye that you think are worth digging into?

10:05I mean, you asked that. Like, I'm still stuck on Capital One, dude. Like, I just pulled up an article from Simply Wall Street. And I'm not seeing the name of the person that wrote this article. So I apologize for that. But they're talking about Capital One being undervalued by 25.3%, fair value being$257, but it is currently$192. So, I mean, something's going on. I'm struggling on the fly to figure out what is going on. So, I don't know. Were you able to find anything? while we've been talking? Well, they've done a couple acquisitions. They acquired Discover Card back in 2024. And then they did an acquisition of Brex, which is a payments kind of fintech type company.

11:07But I was looking at their quarterly. So the Q1 was really when they saw a big bump and they saw revenue go up over 50%. And it was interesting to see their credit card balances so I don't know if this was acquisition or not again this analyzing banks is not one of those companies you can just do on the fly it's a little bit more difficult but their amount of credit card loans is up significantly and so the income from those credit card loans are up significantly and you can make an argument okay either that's a good thing or a bad thing We can always see the bear or the bull case when it comes to looking at numbers.

11:53The bear case would say they have a lot more credit card balances and the customer is going to get more stretched and that's not sustainable. The bull case would say, hey, well, it's just a bank that's doing loans the right way and serving customers the right way. Hard to say for sure at this point. It's something... I don't know. I've always been skeptical about this company. Just looking at the track record and just seeing like, you know, I'm like a big ROIC type of investor. I love my companies with ROIC or return on equity for a bank. And when a company doesn't have a track record like that, I tend to be skeptical.

12:44But if a business like Capital One or Bank of America, or I think Wells Fargo was pretty close to, if these banks have fundamentally higher return rates, higher return on equities, then it's something that I think is worth paying attention to. And again, it's one of those things that I've been kind of thinking out loud about. Is this a potential source of alpha or market outperformance to find companies that are breaking out and invest as they are breaking out? Or is it very context specific and you need to do that at the right times? I'm kind of leaning towards that second idea that I never heard Buffett talk about it.

13:29I never heard Peter Lynch talk about it, specifically trying to target breakout stocks. But I'm not going to lie. It makes me really excited to think I found a company or five that are now these gems in the rough because they have broken out from revenue perspective. And I don't know. Do you have thoughts on that? I think, and it might just be because my risk tolerance is so low. Like that, that idea scares me quite a bit. And I don't really feel comfortable unless I can look at it and figure out why. And so we're talking about Capital One right now. I'm having trouble figuring, yeah, they acquired Discover that gives them, like you said, a new debt book.

14:17It's not a debt book. What is it called? yeah loan book loan book okay it gives them a new loan book it gives them access to new a whole new world of customers that they didn't have before um but man 102 like that doesn't even make sense so yeah unless i can figure out exactly why um i don't feel comfortable with it And that just be me being naive or me just being too safe. But that's where my mind goes. So I did find that it was the Discover acquisition that led to this huge increase. Yeah. So it's weird that it took them so long to add that to their books. I don't know why. There's probably a good reason, but the acquisition, they talked about it being in 2024, but the Q1, 2026 is when you saw that loan book go higher for credit cards.

15:19And so that explains why now they're getting much more interest income from those credit cards. And so you would certainly want to analyze them like American Express or like Discover used to be in addition to whatever else they're doing on their loan book and how else they're generating revenues. So how would we look at that then? So, yeah, their year one growth was massive because of the acquisition. How do acquisitions work? Like, because that growth isn't going to continue year to year to year because they're not getting that acquisition year to year to year. Right. So how do we look at that and logically say, okay, so this year was awesome.

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18:27Well, you hit the nail on the head and it's something that actually I forget sometimes too. Like when you have a big acquisition, to your point, it's going to give you a one-year dip. And then let's say we fast forward two, three, four years from the Capital One story. We're going to look back at their revenues and all the websites and all the tools are all going to show this really nice growth rate. And we're going to say, oh, five years has been fantastic. Not remembering that this acquisition happened. And so it is one of those areas we have to be very careful. And maybe it's a part of a checklist for some people.

19:09Maybe it's just really getting to know every business you buy. But that is 100 % what's happening. Unless we're talking about a company that constantly acquires other companies, this one-year bump makes all your growth numbers look better. And if that's not something that's sustainable, we can't just be attaching a growth rate. So to your point, it could be something a beginner would fall into. another ratio that I really love. I'm a big proponent of the PEG ratio, the price earnings growth ratio, which is something Peter Lynch has talked about. It's a fantastic ratio because it gives you that idea between some companies are more expensive because they grow faster.

19:55But things like this where a big acquisition can make your growth look really good for a year skew the PEG ratio. And so we do have to be very careful again And I think that's where the healthy skepticism comes in. Like if something sounds too good to be true, I've been wanting to believe too good to be true stories a little more lately just because we're seeing companies like you've never seen before do things we've never seen like NVIDIA and Palantir. but at the same time we have to remember finance is a very long track record and i have to continually remind myself if something looks too good to be true it probably is and it's always worth it to do the work to figure out what's behind the growth anyways because oftentimes you will find that explanation and so yeah it's a more involved process and it takes more time but definitely worth it and i like the thought process between keeping that in check yeah definitely and i i never that's something that i hadn't even thought of before like i know i know we need to go look at like historically we need to go look at um when we're doing our research their acquisitions and stuff but it never crossed my mind.

21:23Everything you just laid out had never crossed my mind before. And that's, that's definitely something I need to be looking at adding to my checklist. Um, so do you have anything else you wanted to add about capital one before I move on? Nope. So app loving ticker APP. So funny story because I edited it out, but it's really small on my screen it's hard to read because andrew sent me a screenshot and so i i just saw i saw app and instantly thought apple and i'm like how in the heck is apple like 66.4 percent one year growth um but then he corrected me so anyway uh you know embarrass myself on the back end of editing but um apple oven corporation is a ai powered advertising solution for businesses they provide an Axon ads manager suite and they are just exploding that is interesting do you think this is AI bubble Andrew or do you think this is legit I don't know, do you know about this company at all?

22:50Yeah. So one of the cool features about fiscal is fiscal.ai. You can make notes and then it saves it to the company on your profile. So I have a note for AppLovin that I put in April 7th. The note is called, uh, and then I just wrote like where there's smoke, there's fire question mark. And then I, I said, check my highlights. So they've had a, this is just straight from the 10K. Okay. So I'm not like trying to make some bold claim or whatever. There are shareholders who have filed complaints that the current board of directors have breached their fiduciary duties with unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets.

23:46And then if we look at the proxy statement, which by the way, is a great tool. If you've never looked at the proxy statement, I'm almost certain we've done a whole episode deep dive on the proxy statement. But if we look at the proxy statement, and then whenever I'm in there, I always like to control F ownership because we got to know like, all right, who's driving this bus and who owns what, right? So yeah, we have an individual there who owns 61.6 % of the voting power. So you have to trust Adam. I don't know how to pronounce his last name. You have to trust him completely because he has majority voting power of this business.

24:29So I'm in there. I'm saying yes or no to the stocks very quickly. and so when I saw that I was just like highlight leave a note I'm moving on so for me that was a hard pass however this gross story makes it seem like maybe I need to dig deeper and take some of my own medicine and do more work than just highlighting a line on the annual report how long ago were those complaints filed so they said beginning in late March 2025 was the location. So they directly mentioned him, the guy who owns 62%. Adam for Ferrogi? That sounds right. Interestingly enough, the chief, the CFO makes more money than he does.

25:27Not that that has any bearing on anything. It's just odd, I think. Um, but I mean, I don't know, man. Like if that was the case, I feel like you would be seeing it a lot more in the stock itself. Right. Well, I mean, it has come down a little bit. Yeah, it has come down quite a bit. Okay. I just zoomed out. Yeah. Okay. It's looking cheap though. It's looking cheap.

26:05when i zoomed out it's like holy crap

26:10wow it's come down a lot um okay opened it and i don't even know if this is the peak but it opened it okay high 726.83 currently 329 so yeah yeah okay it hit them fair so I'm curious whether whether your thoughts or feelings on like investing in a company where the CEO has complete control like Mark Zuckerberg owns majority of the voting power and so like nobody else is going to tell that that CEO what to do well I mean that's fair but But, I mean, we got to look at the history of decision making in that case. And, unfortunately, Mr. Ferrogi, if I'm butchering his name, I apologize. It's a mouthful.

27:12But, I mean, he doesn't have a history to go off of, so to speak. So, very concerning. um as far as zuck i mean zuck shows us the has shown us in the past he makes pretty good decisions he listens to his counsel for the most part he's made some bonehead decisions too but for the most part he listens he's been very successful and i am comfortable putting some of my money behind him

27:49just because I think he's earned my trust, I think. And I'm sure there are plenty of you that disagree with me. That's perfectly fine. Send Devin an email about it. Evan at einvestingforbeginner.com. But actually, you guys should email him because he was complaining he doesn't get enough. So just blow him up. but um anyways but but no i mean if you disagree with me that's fine i i trust uh zuck as much as one can not knowing someone personally um i trust his decision making i guess is what i'm trying to say so in that regard i'm okay with it but this like that is a huge huge concern plus you have the...

28:35I'm guessing it's still under investigation. Or did they open a formal investigation on it? Or were they just complaints? We have to find out. Yeah, I agree with you, Andrew. I would say... Man, it's so cheap, though. Yeah. Especially for the growth that they're getting. The whole Zuck thing is interesting because the mistakes he made almost make you trust him a little bit more because he kind of tested that line and saw... You would think he learned from it. Even though I'm majority control of this company, the decisions I make will have an impact on their stock price. So when he makes big spending decisions, he has to take that into account.

29:35When I look at different people in FinTech or finance banking, if they've survived that banking crisis that happened with Silicon Valley Bank and everything, I see that as a learning lesson for the entire industry. And rightly or wrongly, it helps me trust a little bit more that some of these guys are learning the mistakes, especially if they can talk about it too. And maybe if that's the next step here, I'm going to write this company down because I'm going to do a little bit more digging. That could be a great next step for research. Is this CEO public? Does he go out and do podcast interviews and talk about certain things?

30:16Do I agree with his philosophy, how he's been running the company and all of this? Plus, it's in advertising, and I love learning about advertising. Zuck's in advertising. They're in advertising as well. I'm skeptical about the AI part but you hate AI though so that's a surprise I use it way more than most people probably though

30:44no I agree with that synopsis I guess of of Zuck and he has made a lot of mistakes But his track record shows that, like Andrew said, he's able to learn from it somewhat and keep growing the company. Which I think, well, speaking of meta, I read yesterday that MySpace was purchased. And they're trying to bring MySpace. Do you remember MySpace? Oh, yeah. They're trying to bring MySpace back. I'm kind of down well what is the over under you think that that will actually happen I think people are too lazy like it sounds like a cool idea but it also sounds like another thing to put on my to-do list I mean what was your profile song do you remember

31:54no I know I had a picture of a dope Lamborghini as my background though.