Chart Of The Week

As I discussed on Monday, the transformation of Fever-Tree’s geographic exposure and product mix continued in FY25; it will accelerate further in FY26 as the strategic partnership with Molson Coors transitions to an offensive posture (“roughly doubling” U.S. marketing support). In combination with the meaningful decline in exposure to UK Tonics - now ~20% of Fever-Tree’s business - I believe we’re set to see a meaningful revenue reacceleration.

Three Notable Items

“Pernod Ricard in Talks to Combine With Brown-Forman”

As I’ve noted in my research on Brown-Forman, a key question is whether the interests of the controlling family and minority shareholders are truly aligned. These discussion with Pernod, along with the hasty $400 million share repurchase completed in late 2025, are notable developments.

“Pernod, based in Paris, oversees a portfolio of 200 spirits brands, including Jameson Irish whiskey and Beefeater London gin, and has a market value of around $17 billion. Brown-Forman is best known for its whiskeys; it has a market value of around $12 billion… The deal being considered includes a significant stock component, and the families behind the two companies would likely each retain significant stakes in any deal, they added.”

“Amazon’s Rural Delivery Push Slams Into Walmart”

While this article is focused on competitive dynamics between Amazon and Walmart, it sheds light on the competitive landscape for cost-effective and convenient (timely) order deliveries in rural areas. To me, it helps illuminate the value of Dollar General’s unique store footprint, which enables them to sustainably offer delivery speeds in DG markets others will struggle to match.

“The company’s USPS contract isn’t public, but in 2015 Bernstein analysts estimated that the U.S. postal service was delivering some 40% of Amazon packages for about $2 apiece, about half what UPS and FedEx charged at the time. UPS currently imposes a $16.50 surcharge for residential deliveries in many rural areas… Amazon wanted a cheaper alternative, hence outsourcing rural deliveries to small businesses hungry for a side gig.”

“Reed Hastings: How Netflix missed out on Warner Bros.”

I was somewhat alarmed by the price tag when Netflix inked the Warner Bros. deal, because I believed it transferred too much value to the seller from synergies / improvements that were unique to Netflix’s ability to effectively monetize the assets. That was followed by concerns that Netflix may end up paying 10% - 20% more if (when) dragged into a bidding war. In the end, management made what I believe was the right decision: they told WBD in early December this was their “best and final proposal”, and they meant it.

Hastings: “I generally have not been a fan of M&A… but the particular deal we struck [for Warner Bros.] was at a good price, and I was very excited about getting it done. Paramount decided to pay more, and our co-CEO’s, Ted [Sarandos] and Greg [Peters], decided to not take the bid up any higher… A lot of M&A doesn’t work out, but some work out fantastically.”

TSOH Updates

Here’s the updated TSOH research list for the past six months:

Monday’s post will be an update on Crocs (CROX), a company that I initiated coverage on in October 2025. The shares have struggled of late, with CROX trading at a mid-single digit P/E on FY26e. I’ll dig into recent trends at the namesake brand, along with an update on the HeyDude turnaround efforts.

As always, any resulting portfolio changes will be disclosed to TSOH paid subscribers before the trades are executed (100% portfolio transparency).

Have a great weekend!

NOTE - This is not investment advice. Do your own due diligence.

I make no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information presented in this report. Assumptions, opinions, and estimates expressed in this report constitute my judgment as of the date thereof and are subject to change without notice. Projections are based on a number of assumptions, and there is no guarantee that they will be achieved. TSOH Investment Research is not acting as your advisor or in any fiduciary capacity.

Q2 ’21, Q3 ’21, Q4 ’21, Q1 ‘22, Q2 ‘22, Q3 ‘22, Q4 ‘22, Q1 ‘23, Q2 ‘23, Q3 ‘23, Q4 ‘23, Q1 ‘24, Q2 ‘24, Q3 ‘24, Q4 ‘24, Q1 ‘25, Q2 ‘25, Q3 ‘25, Q4 ‘25

Q1 2026 Portfolio Changes:

Portfolio Change - 02/09/2026

Portfolio Change - 03/11/2026

Portfolio Change - 03/25/2026

Top TSOH Posts, Q1 2026:

In Zuck We Trust?

“Trying To Be Realistic”

“How Is This Possible?”

Berkshire Hathaway: Transition

Peloton: Clipping In

As in 2025, Mr. Market started 2026 on a cautious note: the index declined by nearly 5% in the quarter, with the entirety of those losses coming in March.

Today, as was the case a year ago, there’s much concern about macro and geopolitical risks. We’ll see in the coming months whether the S&P 500 keeps sliding lower, or if the market stages another impressive recovery (after falling by ~5% in Q1 2025, the S&P 500 ended up with an ~18% gain for the year).

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Despite navigating the transition to the Molson Coors distribution system, Fever-Tree reported another year of solid results in U.S. mixers, with its retail value share in tonics (Nielsen Total US xAOC) climbing to ~28% in 2025, up from a low-teens share pre-pandemic. While we don’t have financial data for smaller competitors, I think a recent product launch from Q Mixers – “Q Refreshers” – may be indicative of pressure faced within their core range.

With that said, Fever-Tree continues its own brand extension beyond the core tonics and ginger SKUs, in the U.S. and around the world (most notably thus far in the UK). Group results over the past 5+ years were defined by the need to overcome headwinds from UK Tonics – a business which accounted for >50% of FEVR’s FY18 revenues, and which declined at a high-single digit annualized rate over the next seven years (~£121 million to ~£75 million).

The good news is UK Tonics have since shrunk to just ~20% of Fever-Tree’s revenue base. (In FY25, UK Tonics revenues declined ~6%, with UK Non-Tonics up ~6%.) The rest of the pie is a ~£300 million business that grew revenues at a mid-teens annualized clip over the past seven years, primarily due to the expansion of the non-Tonics range – starting with gingers, then followed by premium sodas / soft drinks, cocktail mixers, and non-alc RTD’s.

My investment is a bet on the long-term runway for the other ~80%.

This assumes long-term opportunities for the Fever-Tree brand will not be narrowly constrained to tonics or mixers; they are in pursuit of a much larger beverage TAM, and with good reason to believe that success is an attainable long-term objective. If I’m right about this, I believe that the equity is currently priced to generate attractive returns for investors over the next 3-5 years.

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I’ve decided to make a portfolio change, which will be completed during today’s market session. This was the allocation as of yesterday’s close:

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Capital Allocation and Alignment

First, following minimal repurchase activity over the past two years – $2.9 billion in 2024 and zilch in 2025 – Berkshire recommenced repurchases in early March. While I expect repurchase activity to remain opportunistic, in terms of the level of aggressiveness at any time, I also suspect we are witnessing the transition to a more persistent level of spend, a pressure release valve on a cash pile that now exceeds $370 billion. Said differently, I think they are becoming less stringent on the price / intrinsic value gap for any repurchases – and I think that’s sensible given the difficulty that they’re having in finding a great use for the next ~$10 billion, let alone ~$100 billion.

Second, Greg recently purchased ~$15.3 million of Berkshire Hathaway Class A common stock, which will be roughly equal to his 2026e after-tax compensation. As he discussed on CNBC, he is committing to annual purchases of Berkshire stock equal to ~100% of his after-tax compensation:

“Absolute alignment with our shareholders is critical; the goal was to continue to demonstrate alignment with owners… I’m committed to doing this every year, as long as I’m CEO… I’ve never been given a share of Berkshire. Our shareholders use their after-tax dollars to buy Berkshire; I’ll do the same.”

As is typical of Berkshire, this is a straightforward way to clearly operate in alignment with long-term owners; it’s not necessary to have byzantine proxy filings with a long list of KPIs that inevitably result in massive equity awards to the C-suite executives. Ideally, more companies and more leaders throughout corporate America would follow the example set by Berkshire and by Greg.

Berkshire Hathaway Energy (BHE)

In June 2022, Berkshire acquired Greg Abel’s remaining ~1% stake in BHE for ~$870 million, or an implied valuation of ~$87 billion. Less than two and a half years later, in late 2024, Berkshire acquired an ~8% stake in BHE held by the descendants of Walter Scott Jr. for ~$4 billion, or an implied valuation of ~$49 billion – down more than 40% compared to mid-2022. (Following the transactions for the remaining ~8%, Berkshire owned 100% of BHE.)

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“On the checklist of items that were imperative to my Dollar Tree (DLTR) investment thesis, selling Family Dollar was at the top of the list… It’s a key reason why Dollar Tree quickly became a top holding [at that time, a ~15% weighting in the TSOH portfolio]; after a decade on the sidelines, I believe that Dollar Tree is a very compelling investment opportunity.”

In March 2025, alongside the Q4 FY24 results, Dollar Tree management issued the following FY25 guidance: revenues of $18.5 - $19.1 billion (up ~7% YoY at the midpoint), comps growth of 3% - 5%, and adjusted EPS from continuing operations of $5.0 - $5.5 per share (up ~3% YoY at the midpoint).

Dollar Tree outperformed across the board in FY25: revenues increased by ~10% YoY to ~$19.4 billion, led by ~5.3% SSS growth, and adjusted EPS increased ~13% YoY to $5.75 per share, despite navigating unprecedented tariff pressures and the frictions / costs associated with “red dot” restickering.

As we dig deeper, two things stand out in Dollar Tree’s Q4 FY25 comps.

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“The source, severity, and expected duration of those pressures has been a topic of frequent discussion at TSOH Investment Research. My overarching conclusion is that despite the advances of certain competitors, most notably Walmart, Dollar General (DG) still meets a need for its core customer. At the same time, they did not keep up as the bar kept rising in an intensely competitive industry. That, in my view, is why the strategic shift on Dollar General’s unit growth is appropriate: management’s overwhelming focus needs to be on solidifying the base.”

While the successful implementation of Dollar General’s “Back To Basics” strategy is evident in a handful of data points that we’ll cover today, my preferred metric is the same store sales comparison with Walmart U.S.: as you can see below, the relative SSS gap between the two retailers in the most recent calendar quarter was the narrowest that it has been in five years (a year ago, in Q4 FY24, the spread between the two was ~350 basis points).

DG’s Q4 FY25 comps were +4.3%, which was led by nearly 3% traffic growth and gains across all product categories. The strong Q4 FY25 results were inclusive of high-single digit Non-Consumables revenue growth, led by Home and Seasonal – again, the best outcome reported by the banner in five years.

I believe these are signs of tangible progress amidst a shift in strategic focus. First, new unit growth has been deprioritized, with sub-2% growth in FY25 – the lowest unit growth rate (%) at Dollar General in at least three decades.

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I’ve decided to make a portfolio change, which will be completed during today’s market session. This was the allocation as of yesterday’s close:

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“It’s discouraging to see continued efforts to lessen their exposure [to the core whiskey brands] via acquisitions… Some figures from two recent large acquisitions - Gin Mare in 2022 and Diplomático in 2023 - help drive this point home. While this isn’t apples to apples, the ~$1.2 billion total price tag on those two deals is equal to ~10% of Brown-Forman’s market cap. By comparison, as you can see in Schedule B from the Q4 FY25 press release, these two brands accounted for just ~1% of FY25 depletions. (Gin Mare’s growth disappointed in FY25, resulting in a ~$50 million impairment charge.)”

The primary reason for my ongoing interest in Brown-Forman is confidence in their leading portfolio of American whiskey brands, specifically the Jack Daniel’s family of brands (FOB) and Woodford Reserve, which collectively account for roughly 75% of the company’s non-RTD revenues. Fittingly, the company hosted an Investor Day in October 2025 that was primarily focused on Jack Daniel’s global competitive position. Alongside last week’s Q3 FY26 results, my views on Brown-Forman’s long-term trajectory, and what needs to happen for me to invest in the company, are becoming clearer (stock price weakness doesn’t hurt either, with BF.B down >60% over the past five years).

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“I suspect this speaks to something relatively unique about shelled eggs: in addition to broad demand and a low price point per unit [a cheap source of protein], which allows for premium offerings that are still affordable for a large percentage of U.S. households, there is something tangible about animal welfare standards with eggs and chickens / hens. For a growing percentage of consumers, that impacts their decision-making when they put a dozen eggs in their grocery basket. As we think about other categories across the store – dairy, fruits and vegetables, center of store CPG’s – it’s more difficult to see how that applies. (The argument on animal welfare standards applies to beef and chicken, but the price premium, when measured in dollars, is much higher on a per serving basis than it is for eggs.) If Vital Farms is going to achieve their long-term aspiration – ‘to become America’s most trusted food company’ – they will need to expand into other product categories.”

At the time of the VITL initiation in mid-2025, the stock traded at ~$34 per share, with a forward EV/EBIT multiple in the high-teens. Four months later, in August 2025, the stock had climbed to ~$52 per share, partly fueled by an optimistic response following the Q2 FY25 results. That optimism is no more: on Wednesday, VITL closed at ~$20 per share, down >60% from the recent highs. With an enterprise value of ~$800 million and FY26e EBIT of ~$80 million, Vital Farms trades at ~10x EV/EBIT; that is for a business which has nearly doubled its revenue base over the past three years (FY23 to FY26e), which reflects its branded leadership position in pasture raised shelled eggs.

A key question to answer in the near term is whether Vital Farms can sustain their market share gains and margin improvements of the past few years in a more normalized egg market; if not, a large investment cycle to expand capacity and a lack of free cash flow growth is likely to weigh on the stock.

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“I continue to be surprised by Mr. Market’s willingness to look past Floor & Decor’s near term challenges. To be clear, I remain confident on the long-term opportunity that they are pursuing, as well as their competitive position. But I struggle to come to an estimate of normalized earnings power that would support today’s price – particularly if you believe we’re unlikely to get there anytime soon… Given recent commentary from management, I think it’s safe to assume they are not of the opinion that market tailwinds are right around the corner. If that’s the case, then the above financial model will need to be tweaked (once again). It follows downward revisions over the past 12-24 months - which Mr. Market has not exhibited too much (any) concern with so far. If it continues, we will see if Mr. Market maintains his indifference.”

Floor & Decor’s Q4 FY25 results provided additional support for the cautious stance I’ve taken on the business, and particularly the stock, over the past three years. One metric that encapsulates this is comp transactions (traffic), which have contracted at FND in 17 consecutive quarters (-4% in Q4 FY25).

Management’s early FY26e guidance calls for continued comp pressure, with a low-single digit increase in average ticket offset by a low-to-mid single digit decline in comp transactions. As you can see below, guidance implies FY26e average unit volumes of ~$17.7 million – returning to levels first reached a decade ago, and down >25% from the peak levels reported back in FY22.

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“I question if management can continue to fend off calls for change. The most likely first step would be to sell TheFork… I suspect that’s a stepping stone to more significant changes – to sell Viator and / or Tripadvisor.”

Tripadvisor reported its Q4 FY25 results on February 12th, which were not well received by Mr. Market: over the next few days, the stock fell below $10 per share for the first time in the company’s history, roughly 70% below where it traded following the spinoff from Expedia in December 2011.

As discussed in the initiation, there are two recent developments that make Tripadvisor’s current predicament more interesting: the April 2025 merger with Liberty Tripadvisor, which simplified the capital structure into a single share class with no controlling owner, and the involvement of activist investor Jeff Smith of Starboard Value, who owns ~9.4% of Tripadvisor.

The title of today’s post references a question Smith repeatedly asked, specifically to Chairman Greg Maffei and CEO Matt Goldberg, in a letter following the Q4 results. The following captures the crux of his argument:

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As I contextualize the historic long-term trajectory of the leaders in online travel, I often return to the following graphic, which plots the annual gross booking value (GBV) reported by Airbnb and Booking Holdings over a decade, starting from a comparable size (beginning in FY16 for ABNB and in FY10 for BKNG, when both companies were at ~$14 billion in annual GBV).

Two things in particular stand out to me.

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Roblox’s 2025 results were exceptional, with 55% bookings growth, 69% daily active user (DAU) growth, and a >100% increase in free cash flow.

The DAU count was ~144 million in Q4 FY25, with nearly 60 million added in the past 12 months. Within the DAU base, there are ~36.7 million monthly payers who, on average, generate about $20 in monthly bookings for Roblox. (The number of monthly payers is ~2x higher than the YE FY19 DAU count).

It was a banner year, with results that far exceeded initial expectations - and yet the stock is not only down over the past year, but it’s also below where it traded following the March 2021 direct listing. With improved financials, Roblox is now trading at its lowest EV/EBITDA multiple since going public.

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I have decided to make a TSOH portfolio change, which will be completed during today’s market session. This was the allocation as of Friday’s close:

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From “Peloton: A Costly Turnaround” (November 2025):

“When the initiation was published in February 2022, PTON was a ~$30 stock that had fallen >75% from the all-time highs; it’s now a ~$7.5 stock that has fallen another ~75% since early 2022. Their current pace of subscriber declines is unsustainable, and the level of equity dilution in recent years has been staggering… I will need further help on the company’s stock price and / or a notable improvement in their CF subscriber trends to invest in Peloton.”

My views on Peloton have long been painted by the belief that it is a leading brand with a unique product that is an attractive value proposition for the target customer - but roughly quantifying that opportunity has proven quite challenging (it’s safe to say the number will be well short of the “tens of millions of subscribers” that co-founder John Foley once expected). As it relates to the investment thesis, this is the crux of the debate: we’re well past the astounding growth of the pandemic era, when Peloton’s subscriber base expanded ~6x in 36 months, but when will recent subsequent declines end?

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Historically, here’s how that worked: research is emailed to subscribers at 6:30 am ET, where any proposed changes are first disclosed (“I have decided to initiate a position in XYZ”). Then, on that same day at 5:00 pm ET, I would send a Portfolio Change email detailing the specific changes to be made (“XYZ will be a ~7% weighting, and I’ll trim ABC to a ~5% weighting to fund the purchase”). Finally, those trades were executed the following morning.

This resulted in a >24 hour delay between the disclosure of a portfolio change and the trades. While it hasn’t been an issue thus far, you can imagine a scenario where this delay proves problematic. As such, I’ve decided to tighten this window: going forward, Portfolio Change posts will be sent at 9:00 am ET on the publication date (i.e. two and a half hours after the research report is emailed), with the trades executed later that day.

One final note: the TSOH publication schedule is every Monday and every other Thursday at 6:30 am ET, regardless of holidays / market closures (for example, Presidents’ Day is coming up on Monday, February 16th). In that scenario, all of the deliverables and the timing outlined above would stay the same, but the trade execution would be delayed until Tuesday morning.

As always, please let me know if you have any questions.

I’ll be back tomorrow morning with an update on Peloton.

NOTE - This is not investment advice. Do your own due diligence.

I make no representation, warranty, or undertaking, express or implied, as to the accuracy, reliability, completeness, or reasonableness of the information presented in this report. Assumptions, opinions, and estimates expressed in this report constitute my judgment as of the date thereof and are subject to change without notice. Projections are based on a number of assumptions, and there is no guarantee that they will be achieved. TSOH Investment Research is not acting as your advisor or in any fiduciary capacity.

From “Microsoft: Transition Period” (November 2024):

“When Nadella compared it to the PC revolution in the 1990’s, it helped to frame the size of the prize - but it also spoke to the heavy lift required for broader adoption: ‘Take a business process like forecasting - what was it like before e-mail and Excel, compared to post e-mail and with Excel? That’s the type of change you’ll see with Copilot.’ The metric to keep an eye on is M365 Commercial ARPU growth (gap between revenue growth and seats growth).”

Microsoft’s stock price declined by ~10% following the company’s Q2 FY26 results, and the shares have now declined by ~25% from the late 2025 highs.

In reviewing the recent results, I broadly agree with Mr. Market: this near-term downward pressure on the stock price is appropriate. (To provide some context for that statement, note that I’ve held MSFT as a top four portfolio position for the past 15 years.) A key reason why I believe so is seen below:

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“This input - explosive CapEx growth - is just one part of the story. As we look at the output - Meta’s recent financial results - we can clearly see the first phase of this CapEx ramp has been a home run. As I wrote in November 2022, when Meta’s FOA CapEx ramp was well underway, we could roughly gauge what was required to generate a sufficient ROI (“at least 500 basis points of FOA revenue growth above baseline expectations”). While it’s tricky to pinpoint what ‘baseline expectations’ should be, the number I had in my head was roughly 10% YoY revenue growth; as shown below, the top-line growth rates Meta has reported as of late have cleared that bar by a wide margin, coming in at +20% or better in eight of the past nine quarters.”

While the initial CapEx ramp referenced in 2022 has clearly worked, Meta has moved to a second investment phase, the scale and duration of which requires an even higher level of trust. With Meta’s latest results, each of these variables – the level of CapEx / expense growth and the corresponding reacceleration in revenue growth – have climbed further into what once seemed unimaginable territory. First is FY26e CapEx: as opposed to the consensus analyst estimates in early 2024 - just 24 months ago - for the coming fiscal year of less than $50 billion, the midpoint of management’s guidance is ~$125 billion, or CapEx intensity of ~50% (on FY26e revenues).

While those figures are staggering, they are one side of the equation. One variable to measure them relative to is revenues – and as you can see below, Meta management expects an equally astounding top-line acceleration in Q1 FY26, with revenues increasing ~30% YoY (+26% CC) at the midpoint - the highest quarterly YoY revenue growth rate from Meta in more than four years.

In addition, the following commentary provides further encouragement as it relates to FY26e revenue growth: “We expect FY26 total expenses to be in the range of $162 billion to $169 billion [implying 40% YoY expense growth]. Despite the meaningful step up in infrastructure investment, we expect to deliver operating income that is above our 2025 operating income.”

The low end of those expectations - for minimal EBIT growth in FY26e – implies at least mid-20’s (%) revenue growth, to >$250 billion. As we think about how Meta was perceived by the investment community just a few years ago – Facebook was well past its prime, TikTok was disrupting Instagram, and Apple’s policy changes (ATT) would structurally impair targeting and attribution for monetization – it is pretty astounding that Meta has delivered ~22% annualized revenue growth over the past four years (FY22 – FY26e).

With that said, the FY26e figures still imply a substantial growth gap between revenues and expenses, the result of which will be ~600 basis points of EBIT margin compression, to ~35%; as a result, I expect mid-single digit EBIT growth in FY26, substantially lagging revenue growth. This, in my mind, provides the framing for understanding why the stock has been so volatile: while it’s not too revealing to say the near term financials will be driven by these two variables, expectations have been all over the map in recent years.

What explains the significant volatility of each variable?

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