Free Cash Flow Machine.

3 Tools to Help YOU Find High ROI stocks.

Free Cash Flow Machine.

3 Tools to Help YOU Find High ROI stocks.

Hi Everyone 👋,

Happy Sunday! Welcome to the 292 NEW subscribers who have joined us since last edition. If you’re reading this but haven’t subscribed, join our community of smart, fun & edgy investors:

With the stock market trading near all-time highs, it’s easy to forget there’s an actual due diligence process to investing beyond throwing darts at a screen.

Today, using a company I have owned for nearly a decade, Descartes Systems (DSG-T, DSGX-US), I will show you 3 tools I use to breakdown stocks:

1.    Fundamental Analysis 👉 Numbers 💰

2.    Technical Analysis 👉 Chart 📈

3.    Behavioural Analysis 👉 Street Chatter 👥 

I still think DSG has strong upside and I will tell you why!


Fundamental analysis is understanding the MATH and MISSION of a business.

How do they make money (expect to make money)?

You would be shocked to know that most CEOs cannot explain this clearly in one sentence.

For example, here’s the Wikipedia description of Descartes Systems:

‘Descartes Systems is a multinational technology company specializing in logistics software, supply chain management software, and cloud-based services for logistics businesses.’


Let’s break this down.

Imagine Gabriela who lives in a small Italian village outside Milan orders a desk from U.S-based Wayfair. Think of all the logistics hoops a package like that needs to jump through to arrive safely.

Physically it needs to travel by plane, train & automobile (aka truck).

Beyond that, there’s an entire ‘Rube Goldberg’ of customs & security checkpoints the package needs to successfully pass through.

Complex indeed!

But since the journey was powered by Descartes Systems network, it was SMOOTH SAILING.

Simply put: Descartes makes money by taking a fee on every leg of a package’s journey.

It’s a fee machine. Like a toll both. But digital. And guess who loves toll booths?

Warren Buffett!

Especially tolls with ‘competitive moats.’ Which Descartes has.

The only reason one of its customers like Home Depot, Coca Cola or FedEx would switch platforms is if they found one that was 10x better or 10x cheaper.

Otherwise the ROI ‘switching cost’ isn’t worth it.

So far so good! DSG customers are sticky. And getting stickier as the company keeps adding new services.

Not only have they expanded the verticals they can offer (types of transportation), but also the depth of each of these verticals (compliance/custom services etc).

Clearly, they are doing something right. DSG is now one of the world’s largest logistics networks!


  • Founded in 1981

  • 20k customers globally

  • 160 countries served

  • 40MM routes/managed per year

  • 18.6B messages processed/year

Like one of my favourite sayings “Build Once. Sell Twice.” The glorious power of networks!


Every time I hear the words ‘Free Cash Flow,’ I can’t help but get giddy and picture a beautiful cascading waterfall of shimmering money splashing “DING, DING, DING!”

Free cash flow (FCF) is the holy grail of ROI.

It means the company is making more money than it’s spending.

Without going into CFA analysis mode here, trust me FCF is better than Net Income. It’s less prone to accounting manipulation.

Remember Enron? ‘The smartest guys in the room’ that went to jail. They had a lot of net income, free cash flow not so much!

Thankfully, Descartes generates a lot of FCF: 80% of EBITDA becomes FCF. Meaning for every dollar of profit, they make 80% of it becomes real cash they can use to keep building their business!

To be clear, most companies don’t generate ANY FREE CASH FLOW. If you find it, never let it go ; )


Descartes is the ultimate ‘PAC-MAN of M&A.’

They aren’t getting FAT they are getting FIT.

Meaning, they buy companies that add to the bottom line not just the top line.

Since 2014, they have made 25 acquisitions and have proven themselves to be great acquirers — specifically not overpaying for companies.

I feel great sleeping at night knowing I don’t have to become Sherlock Holmes every time they make an acquisition. They have it down to a science: Rinse. Wash. Repeat.

The logistics industry they are consolidating is large and expected to reach $15T by 2023. It’s growing quickly due to COVID and the eCommerce boom, where 10 years of digitization was compressed in less than 5 months.

The industry is also very fragmented. Meaning there’s a long runway of companies for them to buy.

Now, let’s look at their balance sheet to find out if they have the ability to make acquisitions.

Sometimes companies talk a big game about doing deals but when you look at their balance sheet, they don’t have two nickels to rub together.

Not an issue for Descartes. Their balance sheet is stellar!

  • Zero Debt

  • +US$114MM Cash

  • US$350MM M&A line (potential to expand up to US$500MM)

  • +$1B Mixed-Shelf Filed (means they can issue equity at any moment)

Fundamentally I love this company. Now what do I think of the chart?


The first thing I do when someone pitches me a stock is look at the chart.

I have probably looked at over +10k charts over my career. After a while, you start seeing patterns.

Like a family doctor who can spot a seasonal flu from the moment a patient walks in their office.

I like to think I can spot a sick chart from a perky one!

I also have my CMT level 1. Which is a formal certification for reading charts. But I never pursued the other 2 levels. I think, going too deep down the technical rabbit hole can be problematic. Where you can’t see the forest from the trees.

When I need a more in-depth analysis like today to showcase DSG, I rely on a technical analyst that I have known for nearly 15 years —Joseph Farrell. He has been ranked #1 technical analyst in Canada by Brendan Wood International Survey (2007).

Also fun fact: he is a professional ‘Fake Umpire’ who’s been featured on ESPN.


GRIT’S TRANSLATION: Chart looks constructive long-term. Short-term it could pull-back to the ~$61-63 zone. For new buyers, this would be a solid entry-point to buy the stock.


If all we needed to do to become Warren Buffett was to BUY undervalued stocks and SELL overvalued ones. Then, monkeys using excel spreadsheets would be billionaires.

Thankfully, the efficient market hypothesis doesn’t hold true. Stocks are mispriced for all sorts of reasons. This is where humans come in. Those who figure out why stand to make the most.

This is especially true for small caps. Where the potential for 10x returns is significantly higher (and riskier) as it’s less efficient. This is the sandbox I like to play in.

Experience plays a key role in the stock game. To become GOOD, you need to clock-in your 10k Malcolm Gladwell hours. To become GREAT, you need to be obsessed.

I am obsessed and working on becoming great. Ask anyone who knows me.

I’ve put in 15 years in finance, listened to thousands of CEO pitches and invested in hundreds of companies. I have lost a lot of money, but made more.

I look at every day and every stock as a learning opportunity. Which is why I’ve been nicknamed the ‘Roch-Detector’ by some ; )

Beyond fundamentals & technicals, there’s always a behavioural element I like to try to understand. Who are the players? How can I win? How can I potentially get screwed here?

1) Deals & Small Caps:

  • Who owns the stock? (Breakdown between retail/institutions, who are +10% holders & what are their intentions)

  • Management Team? (What successes, but more importantly failures have they had in the past)

  • History of financings? (How much was raised, at what price/when & what are the lockup details)

  • Who are the ‘deal guys/girls’ behind it? (Including any VIP investors)

  • Main upcoming catalysts? (To understand the “stock story” – will it be action filled or sleepy hollow?)

2)   Mid-Caps & Larger Caps:

When it’s a larger company like DSG, the above is less relevant because the market becomes more efficient as market cap increases. I like to understand the following:

  • Competitors? (Is there a similar company in a similar sector with more growth that is about to IPO or raise a lot of money therefore is competing for the same pool of capital?)

  • Institutional Sentiment? (What’s the bull case? What’s the bear case? Understanding differentiated viewpoints of smart minds is important)

On DSG specifically, there are a few bears saying its overvalued trading at +100x 2021 P/E*. And I wouldn’t disagree with this but:

1.    If you look at North America SaaS peers using a C2021E EV/EBITDA multiple, DSG is actually much cheaper at 29x vs 39x*.

2.    Being expensive is not enough of a reason to sell a stock.

How’s Grit Playing it?

I have owned DSG for nearly 10 years. I continue to be bullish on it. It’s a well-oiled machine with strong short-term & long-term prospects.

Short-Term: Vaccine

The CEO recently said this will be positive for them:


1)   eCommerce/Last Mile Delivery boom

2)   Brexit, UK/Ireland & US government transition (policy/tariff changes)

3)   ‘Work-From-Home’ shift forcing DSG customers to move to cloud-based digital tools from legacy physical ones

Lastly, one of my finance mentors – billionaire investor Chamath Palihapitiya – said this last week about Tesla's stock, which echo my feelings on DSG:

Until next time. Always Yours. Incessantly Chasing ROI,

-Genevieve Roch-Decter, CFA

P.S “It’s not so much Bitcoin going up as dollar going down”@naval

What else we Grittin’ On:

Big Green Short. Michael Bury is back and shorting $TSLA like the housing market collapse.

SHOP. ‘Buy Now. Pay Later’ Affirm had its IPO debut this week. Shot up 100% turning Shopify penny warrants into $2B.

Value Trap. Value investing has had the worst 3 years in 100 years. By a wide margin. Will it return?

Pumping Pennies: 1 Trillion shares traded in penny stocks. “Were seeing massive – record — activity in the most speculative vehicles that are allowed in the U.S”

*Sources: NASDAQ, Canaccord, Bloomberg, Industrial Alliance, Descartes Systems.

Disclaimer: All material presented in this newsletter is not to be regarded as investment advice, but for general informational purposes only. Day trading does involve risk, so caution must always be utilized. We cannot guarantee profits or freedom from loss. You assume the entire cost and risk of any trading you choose to undertake. You are solely responsible for making your own investment decisions. Owners of this newsletter, its representatives, its principals, its moderators, and its members, are NOT registered as securities broker-dealers or investment advisors either with the U.S. Securities and Exchange Commission or with any securities regulatory authority. We recommend consulting with a registered investment advisor, broker-dealer, and/or financial advisor. If you choose to invest with or without seeking advice from such an advisor or entity, then any consequences resulting from your investments are your sole responsibility. Reading and using this newsletter or using our content on the web/server, you are indicating your consent and agreement to our disclaimer.


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