Expert Emily Flippen and Andy Cross discuss the concept of risk in investing and introduce a risk rating system. They assess the risk and performance of KinSail Capital and Chewy, focusing on profitability, cashflow, and customer service. The importance of sustainability, disclosure, and competition is emphasized, along with the potential risks associated with management turnover and growth strategies.
KinSail Capital has a risk rating of 7, demonstrating proven management and a stalwart balance sheet.
Chewy has a risk rating of 11 due to concerns about its growth initiatives and competition from larger companies in the pet retail market.
Deep dives
Founder and Insider Ownership
Neither KinSail Capital nor Chewy have key insiders with at least a 5% stake in the company. Michael Kehoe, the founder of KinSail Capital, owns slightly less than 4% of the company, while Chewy's founder sold their entire stake in the business to PetSmart.
Leadership Tenure
KinSail Capital's top three officers, including the CEO and CFO, each have 15 years of experience within the company. However, Chewy recently experienced turnover in its C-suite, resulting in a new CFO and making it ineligible for a 'yes' in this category.
Kinsale Capital Risk Rating
Kinsale Capital has a risk rating of 7. The company has proven management, a stalwart balance sheet, and does not rely on acquisitions to grow. They have a highly regulated insurance business and are leveraging technology like AI to write insurance more profitably.
Chewy Risk Rating
Chewy has a risk rating of 11. While they have solid customer service and capital allocation skills, there are concerns about their growth initiatives and potential impact on margin profile. The business faces competition from larger, well-resourced companies in the pet retail market.
High risk? Low risk? MEDIUM risk? What does that even mean? And what the heck is risk anyway? Today, we define risk Foolishly and revisit our risk ratings, a system to quantify the long-term risk your companies may face.
Companies Discussed: KNSL, CHWY
Host: David Gardner Guests: Emily Flippen, Andy Cross Producer: Rick Engdahl
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