The Anatomy of a Fallen Angel: Management, Mispricing, and Turnarounds + $WW Thesis with Paul Cerro

Summary

My guest on the show today is Paul Cerro, Founder and CIO of Cedar Grove Capital Management, and today’s conversation is all …

Transcript

This podcast is forformational purposes only and is not an offer or solicitation of an offer to buy or sell securities. SNN network Network, SNN Inc. and the Plano Microcap podcast and the representatives are not licensed brokers, broker dealers, market makers, investment bankers, investment adviserss, analysts, or underwriters. We do not recommend any companies [music] discussed. We may buy and sell securities in any company mentioned and make profit in the event those securities rise in value. We recommend you consult with a professional investment advisor, broker, or legal counsel before purchasing or selling any securities referenced in this podcast. Welcome to the Planet Microap podcast. I'm your host, Robert Craft. Thank you all so much for the continued support and for tuning in. [music] If you like what you hear on the Planet Microap podcast, please take a moment to rate us five stars on Spotify or Apple Podcast. It really helps more folks discover the show and join the Micro Cap investing community. We announced our full slate of investor conferences for 2026, all in partnership with Micro Cap Club. Our next major event is Planet Micro Cap Las Vegas happening June 16th through 18, 2026 at the Bellagio. Registration is now open for that. And then later in the year, we'll be heading back to Toronto October 27th through 29, 2026 at the Arcadian Loft. The mission is to bring the best micro cap investors and companies together to gather, connect, and grow. This includes your participation. We know that you are putting your 2026 investor conference calendars together as well as your full travel schedules and we'd like to humbly invite you to join us for one or both of these events. Please visit planet microcapshowcase.com for more information and I'll see you in Vegas and Toronto. Now, my guest on the show today is Paul Sero. He's the founder and CIO of Cedar Grove Capital Management and today's conversation is all about fallen angels. once high-profile companies that collapse due to poor execution, leverage, or macro pressure, but can become some of the most mispriced and compelling opportunities in the market. Paul breaks down the anatomy of a fallen angel, why these setups create structural market inefficiencies, especially in illquid micro caps, and how force selling, headline driven reactions, and information scarcity can disconnect price from fundamentals. More importantly, he explains the key dividing line between genuine opportunity and a value trap. Management credibility. In micro caps, direct access to leadership gives investors a rare ability to test their assumptions and validate the story before making a high conviction bet. We also zoom out to the macro landscape where Paul sees 2026 shaping up as a major buyout year for fallen companies with private equity sitting on record record dry powder and the potential for rate cuts. Consumer-f facing businesses, retailers, restaurants, and even select uh real estate names could become prime acquisition targets. And then we dig into a fascinating case study, Weight Watchers, a company Cedar Grove originally shorted into bankruptcy and one Paul now views as a compelling postreorg long. [snorts] He walks us through the dramatic deleveraging, the mandatory cash sweep that accelerates equity value creation and the company's strategic pivot toward a holistic wellness model that integrates behavioral coaching with GLP-1 medications. It's a rare look at how a fallen angel can move from short to long purely based on fundamentals, incentives, and structure. This episode is a deep dive into special situations, fallen angels, restructuring dynamics, and the psychology required to separate opportunity from permanent impairment. And for full disclosure, Paul mentions a number of companies today, and I'm not a shareholder in any of them. [snorts] So, with that, please enjoy my conversation with Paul Sero of Cedar Grove Capital Management. Paul, good to see you, man. How you doing? >> I'm doing great, man. Always good talking to you. >> Heck yeah. Always good talking to you, man. It's been a minute, you know, since uh since our hang in Vegas. That Dude, we had a good hang. That was a really good hang. >> That was fun. I I I know we were talking about it before this, but like I had a really good time, not just with the people there, but also the companies that we got to meet. And um honestly, I can't wait for the next round up in 2026. >> Hell yeah. No, you know what? I one of my favorite uh moments of Vegas this last year was when we had that dinner or I don't even think it was a dinner. I think we all just >> No, no, >> we just ended up going to what was Pump, I think it whatever. >> Yeah, drinks like pickle food. >> Who was it? Me, you, Dylan, who's the homie now. Like just just the best part is just like >> I mean just hearing about everyone's impression of some of the companies like who's, you know, what company, what management team said, like what goofy thing that day. Like it's just the best, dude. >> Yeah. Comparing notes, that's like Yeah, that was that was definitely up there for for the for the good parts. >> Oh, yeah. Well, look, dude. I well one I'm I'm excited to see you back in uh Vegas next year. Um you know we're that's we're getting all geared up for that. But look you you reached out because you were like hey Bob have an idea I got some thoughts you know we should probably talk about I said love to hear your thoughts we should definitely talk about it. So here so here we are. Um, you know, the main theme being on, you know, you had an idea that you wanted to discuss on here, but you know me, I'm always going to go the next level up of be like, oh, you know, it's cool to talk about a name specifically, but let's talk about the theme around the name. So, the theme right now being fallen angels. Um, you know, always something that is definitely a bucket in our micro cap universe of opportunity set. So, I mean, I figured before we get into the idea and why you're finding it interesting right now, you know, tell us a little bit about about how you define fallen angel, what is interesting about them to you? >> Yeah. So, great question. Um, so when I look at fallen angels, I think there's going to be a lot of similarities that others will probably agree with me on, and there's some that can be subjective to to who you're asking, right? But I think generally speaking, fallen angels are the ones that had a very highprofile either rise or just straight brand equity when you know they're they're in the public markets, right? And unfortunately from whatever it's company execution, management execution, macroeconomic uh you know whatever uh it just it just either slowly bled down and out of people's minds or it just collapsed precipitously and was on the front page of everybody's probably like news reports and alerts uh that that was going on. And the reason why it's an I label as a fallen angel falling because obviously it went down but an angel because kind of everybody knew about it. Um it's a name and so it got the publicity that it got um because otherwise you know there's a bear in the woods but that's how I kind of label it. Um it's got to it's got to it's got to have that uh that that status with people. Um so that's how I label it. Um and just give you like quick examples because I know people will definitely relate to this. Like I would label like sweet green a fallen angel. Everybody knew sweet green, you know, overpriced salads and like look where we are, right? Um I would say like kind of Lululemon. You might want to put that one up there because that one's more of a recent one. Um uh there's other there's other ones I can name, but I think those two are probably the forefront of everybody's mind at least if you're on Twitter still. >> Oh yeah, we're we're all still on Twitter for sure, you know. And I think everyone will not call that. [laughter] >> It is Twitter 100%. Uh, quick, are you shareholder in Sweet Green or Lululemon? Just >> Oh, yeah. No, none of them. >> Just make sure compliance with You know what's funny? We should do I I should do like a Sweet or Sweet Angel. I should do Sweet Green Angel. I should do a Fallen angel pod like every Q3 or like at the like just after every Q3 because for tax laws selling, I feel like there's going to be like, okay, we have a new set of like here's 25, you know, fallen angels of companies that just sucked ass this year and here we go. Now they [laughter] now they're fallen angels. >> Yeah. I mean that's actually it's probably a good point because I know I mean obviously no one's immune to it but I'm sure this past month a lot of people did a lot of tax loss harvesting [laughter] on on some things. So yeah listen man if you're following Micro Cap closely like it's there it's it's been a month it's been a it's been a quarter. Let's just put it like that. Been a quarter for sure. >> I would I would be a little bit more optimistic and say it's been a ride. Um [laughter] but uh yes yes it has been >> well I mean in your opinion why why would you why do these situations often lead to this kind of meaningful mispricing or overreaction from the market. So, a number of things. Um, I think everyone, well, number one, I think everyone's quick to like label things as an overreaction because, you know, it's it's like psychological. Nobody wants to actually admit that they were wrong or what they said was wrong or the the events that unfolded or are or justified or not. So, I think there's always a portion of like people like trying to say that it's mispriced. Um, and then, you know, it keeps going lower and lower and lower and you're just like, "Okay, you know what? Actually, now I'm wrong. Now I'm down 75% instead of like the 25% that I was. Um, but the the reason why I would say like, you know, they're they're they're kind of fallen angels. Um, is is mainly because depending on how big they are, right? Some funds actually do decide to sell down, right? Depending on how how much how liquid the stock is, you know, sometimes these sell downs can be very aggressive. if someone like wants to fold in the towel, you know, either massively cut their position or liquidate their entire position. I've had that happen to me over the last couple of months where like things like maybe the maybe the outlook wasn't as rosy and like other funds were like, you know what, I spent enough time here. It's time for me to go and go somewhere else and they leave and when they leave they kind of take everybody down with them. And in micro cap land, that is not uncommon since the liquidity is tight. um which is both a bug and a feature depending on how you look at it. Um but otherwise um it's also like besides the funds and besides the you know mispricing I think people people fail to realize what the actual story is and I think that's where like a real mispricing happens because you know they get the headlines of ah you know we we we grew 25% instead of 40%. >> Yeah. misguidance. Guidance missed or not not not having guidance for 26 or reducing guidance for 26. What? >> Yeah. Because I mean think about it. It's like even with micro caps because I know that's what what you cover why we're here and what I also invest in. But it's it's um the information especially like on the alt side is not abundant, right? Like if I have a if I if I can um I know we were talking about earlier, if I can go into a Lululemon, I can go to a physical Lululemon store. I can get alt data on Lululemon. I can see I can see almost all the things that I need to see in order to make a pretty high highly convict uh conviction um decision. Um micro caps like if I'm going to talk about a micro cap industrials company that's based in Canada, good luck finding anything that's going to help you in that sense, right? Um so it's it's just very difficult. So people are like jumping if there's a true mispricing. They just jump to the point where like you know what it's not it's not right. I don't I don't feel it in my bones. You know, management said um this one quarter, but then actually another thing happened. So like now I don't trust them. But in reality, like there's always like maybe like some nuance in there. Um, so I think there's a lot of reasons why these companies get sold down and eventually become what we what we're talking about fallen angels and our job as investors and um, you know, and just other people who are interested, you know, dive into these areas because number one, I think you can make a lot of money doing it. Um, and then two, uh, because I mean I think I've told you before and if I haven't, great because whoever's listening, I think this is really important. Um, I consider investing a professional sport. Um, I've never been good at actual sports. I never I was never the football guy or basketball guy, but you know, I do consider investing to be a professional sport. And obviously, I want to be Michael Jordan or LeBron just like everybody else. And to be able to catch those fallen angels where everybody has puked them because they think they understand the story or what's going on. Um, but actually, you know, it's something else is is actually happening. Not only does it feel amazing to be right on that, but then you also can make a lot of money once the market realizes, oh, you know what, that probably shouldn't have happened. The future is bright. Uh, and then everybody comes racing right back. Um, but that's kind of how how I see things. It's it's it's really just a function of like liquidity, people saying it's mispriced even though it's not. But then there's also like if it's actually mispriced, why? And how do you benefit from that? Um, and actually that's one I want to mention. Sorry, I know I mentioned like Sweet Green and Blue Lemon as examples. Robin Hood was a perfect example of that, right? Like everybody wrote that off and then bottomed in 2022 as like a couple bucks or something like that. And look where we are now. You know, it's it's it's it's not a function of like, I'll handle through volatility. It's like, okay, is the market right or is it wrong? And if it's wrong, why is it wrong? Um, and that's where you make a lot of money. A lot of money. >> 100%. Shareholder and Robin Hood. >> Oh, no. You forget about that. >> No, no, you're good. Don't worry about No, I mean the It's interesting because specific to Micro Cap, you know, you see this trend a lot is where like, you know, a company will have, you know, a couple great quarters and then, you know, maybe one really bad quarter and then now they're in the penalty box, you know, for a little bit. And it's interesting trying to figure out like okay well should the company be in the penalty box or is there an actual signals here to help distinguish uh whether or not like you know it's not that they were li it's just like maybe there are some factors that happened that maybe they didn't foresee or something like that but I mean for you what what are some of the signals that help you distinguish between that true fallen angel from a value trap with that permanent impairment >> having yeah good question so having been on the receiving leaving side on both sides actually. I one of my biggest things I mean me I think every everybody should be doing this but management if I mentioned I mentioned an industrials company in Canada getting all data on that you're not you're just not going to get it so what do you have to do you have to you have to basically trust that man whatever management's telling you whether they whether it's positive or negative is it legit a b how like what's what is your what is the like um the magnitude of whatever ever statements that they're giving, right? So, is it true or false? How true like how actually true is it? Is it exaggerated? Is it not exaggerated? Etc. And then um determining for yourself like does that actually translate into something good, something bad, etc. So, for me, it's in um uh can I can I trust management? Do I think they're blowing smoke at me? um are they ones who are in it for themselves or can they they're trying to like not have investors fleece so they're like sugar coating things. It's like you know I I really I need to be able to trust management because if you're taking a position in these companies you you kind of have to rely on what they're telling you and then not just have to wait, you know, 3 months later for another another cue to come out or or surprise AK like oh hey, whoops, sorry. like we're lowering guidance because um what I said two weeks ago isn't going to happen. You know, it's stuff like it's that's like one of the big things that I think um that I look at. Um and then sorry, there's there's other part to that question, right? Or was it >> Yeah, that that was pretty much it is just like what are what are some of the signals that help you like really just make sure like okay, this isn't just trying to catch a falling knife versus like okay, there's there's real value here, but there the market's missing something completely. I mean because the thing is I mean that that that shows back to a lot because the thing is like the mispricing thing if you if you believe management like I have a company right now I'm not going to name it because um not to talk about it but like management dropped the ball. They literally said, "Hey, like what I said was going to happen, like unfortunately it didn't all materialize." So, we had to bring down guidance. Um, but I'm still very optimistic about the company and where we're going this and that blah blah blah. And you know, in that particular scenario as an investor, I mean, like once he said that once the AK got filed, like all of us, like obviously other PMs that are involved, we all have like a little group chat going on. We're all like, "What's going on? Like, what do you think this and that?" are all comparing notes and we all came to the conclusion like no, I don't think this guy's lying. I think he's actually being legit. Um I I think he's owning up to his mistake. Does it suck? Yes. But uh at the same time, it doesn't change the narrative. It might change the shortterm narrative. It doesn't change the long-term narrative. Um so so we we we still trust him and we'll continue to hold. And I wanted to add one other point, too, because it's very important about this. I know there's a lot of like retail investors who are listening into this. So, it might not apply to all of you depending on how big your bank accounts are. But when it comes to, you know, like managing actual cap, like large amounts of capital, you don't get to like you don't get to just walk out whenever you want. Like I mentioned before, there liquidity is always a factor. It can be a bug. It can be a feature depending on how you look at it. If for whatever reason um management has said something that you don't like and you don't trust them anymore, getting out of that is hard. getting out quickly, I should say, is hard. Um, so when you when you're taking positions in these in these companies, more often than not, actually should be all the time, you're in it for the long haul. Uh, because you know, if I need a I'm in a crowded movie theater and a fire starts going out, it's going to take me a bit of time to get to the exit. Um, so that kind of piggybacks into the kind of the whole like noise versus signal. What what's actually being mispriced? What's not being mispriced? Is it legit? Is it not legit? because again I can't this is not a a large cap stock where I can move in one day and out the other on like 5 minutes of liquidity can't I can't do that. Um so it's very important that you really sift and digest that information and make educated decisions. Um but I think it largely stems from what management tells you and what you believe and what you don't believe. >> So note to retail out there is like just get bigger bank accounts so that you get you're forced to have that mentality that like oh I have to wait let me take a step back here. No, I'm just kidding. >> Usually, >> it's at least a as a mindset. At least as a mindset, right? Like if you're you know, if you if you don't have liquidity, let's say you don't have liquidity restraints and you're, you know, you're you're building your your net worth and whatnot, like it's almost bet it's it's good to have that mindset of like, all right, you know, things are selling off pretty hard right now. Let's take a step back. Like I mean it's all part of when you're putting your thesis together and having that you know strong strong conviction or not is like okay I have my checks in place of like this would be my sell this would be my reason to sell you know so like if there is actually a legit reason that breaks your thesis like yeah by all means like get out of the position because you probably don't trust management anymore but if it's selling off for a reason that you didn't put as part of your thesis that seems you know in parlance of Gen Z us. >> Wow. Yeah. No, you're right. No, you're you are right. Yeah. >> Right. Like then you can like All right, let's let's let's hold on. Like let's let's let's take a breather. Let's see what's going on here. >> But that allow I mean that's that's great for retail investors, right? Because if you don't have the same restraints like >> Yeah, great. You know, and I mean I mean we're talking about micro caps now, but at the same time it's you know the same thing happens with midcaps and large caps. there are funds who manage billions of dollars who might not be able to leave quite quickly um as they would like um uh but at the same time especially in micro crafts because the swings are so wide >> that could present an opportunity to you know you like you double down or whatever you want to do like size up because you understand what's actually going on like in the example that I gave you oh I bought more I was like okay no I I think I think he's not lying I think it's legit I think we're fine and then again without naming the stock it went right back up to it sold pulled off and went right back up to where it was trading at. So, I'm like, "Great. Okay, maybe >> average cost just went down." Like, here we go. Like, great. >> Yeah. >> Thank you. >> Exactly. Exactly. >> Free free 20%. Or whatever it is. >> I would say free. >> Well, you don't have involved in that. Yeah. [laughter] >> Well, I mean, I think the main point you just made I think is probably so probably the most appropriate is like it just especially in micro cap you have that advantage is access to management at the end of the day. Like it it works in your favor. so much where like you can just call them up and just verify a couple things or you know get with their IR get with a few investors get on a call with management and just be like hey all right what happened you know and then you can actually hear from the horse's mouth like what happened what's going on and you know you can then leave it to your own instinct and judgment if you continue to trust the person or that's it you know so that management always comes down to it >> always comes down to it for for anybody here that's listening for any manager that's listening, you know, like just be a straight shooter, you know? >> Be a straight shooter. Don't sugar coat it because I mean, we're not stupid obviously. So, like >> don't try to us. >> Yeah, happens, man. Like, you know, no one's no one's perfect. Things are going to h you know, sometimes they're going to be out of your control and you know, you try and put your best foot forward, have a good quarter. Hey, you know what? You're going to guess what? You're run a public company. You're going to have a bad quarter at some point. Just own it. Talk about why. Be honest. And you know, just be communicative. It's probably that's probably the best time to be communicative is when you have a bad quarter. Like don't hide behind it. Just be like this what happened. Move forward. Let's go. >> The best and most critical time like don't don't under don't underestimate the power of like not just like not just reassuring people but reassuring people in a genuine way. If there is something genuine to be sure reassured about. >> Should I do a call out now? Like any CEO that had a really shitty three by all means come on Planet Micro. Let's talk about why and you know and uh address any issues. Yeah. Uh we should yeah be pseudo PR pseudo PR [laughter] like all right what happened you know why and uh how are you going to move forward? Um real quick before we get to the idea that is you know you you were like we need to talk about this. I mean, have you noticed anything with regard that is specific to 2025 that they're being, you know, is the opportunities that, you know, is there more potential fallen angels there uh that you've been digging into because for whatever circumstances, you know, we happen to be in in 2025 or is this just kind of part for the course like all right, you know, another year, another few opportunities to look at? >> Oh, no. You know what's you know what's interesting is because so I was actually I I in in in late 2022 I um I released a a report that said um that was basically saying like hey the consumer is like not looking hot and I felt very confident in that trade. Um you know I was just saying that prices just keep going up. It keeps paying for this this and that blah blah blah. And um you know hindsight 2020 yeah I was obviously wrong. Apparently people still had money. I don't know from where but they kept having money and everything was fine. But then when you come to this year, it seems like finally things are happening at least in the consumer space, right? We've seen we've seen restaurant after restaurant uh stock has just been absolutely decimated. Retailers were getting decimated. Um I'm talking about the small ones, not not necessarily the big ones. I'm talking about Costco or Walmart. But um you know, it seems like there's definitely a K-shaped economy. Um, and one of the themes I'm gonna give everybody a teaser right now because I don't know when this is coming out. I imagine it's before the end of the year. Um, one of the themes that I'm working on in a recent in a recent note that we'll we'll give out before Christmas is um themes for 2026. And actually revolves around what happened in 2025. And I think you're having a lot of these companies who have, for lack of better words, to bed. uh whether it's from a macro perspective, operational perspective, like whatever demand, whatever, right? Like I mentioned restaurants, I mentioned other retailers, um real estate has gotten, you know, destroyed, builders are like trying to find a heartbeat again. And what I think is actually going to happen, what I'm looking out for in 2026 is I think which we've seen a taste of already in 2025 is that there's going to be a lot more buyouts in 2026. Um and that's mainly stemming from the fact that uh public investors are weary about holding positions in these companies because while they're might be okay, maybe the growth isn't there, you know, like whatever that private equity sitting on all the dry powder in a rate cutting environment is going to just scoop these things up and be like, you know what, sure, we'll fold it into our into our portfolio or cut the costs synergies and then, you know, flip it flip in a couple years. I mean, we saw that with this year, and I'm talking about retail because you know me, I'm very consumer retail heavy, is uh, you know, we saw guests get taken out, we saw Sketchers get taken out, we saw Foot Locker got taken out, and if you looked at their charts, they were all down like 60, 70, 80% until they got bought out. Um, I think restaurants are also going to be a part of that. We had that we had the rumor with um, was it Pizza Hut, I think is what it was. Pizza Hut. Um, had that rumor from Apollo. Um, so I think what I'm seeing is like if you want to potentially do some speculative buyout um, positions type trades. I think it'll be very interesting going into 2026 just because of like all the things that have been left for dead and it's not like restaurants are just going to like close uh, entirely. People are still going to go out to eat just to what degree and you know what ends up happening. >> Okay. All right. This is a perfect set. Well, real quick, you mentioned a number of names just now. Do you own any? I >> have no positions in any of them. >> Okay. Just making sure. All right. I'm I'm gonna make t-shirts one of these days, like, you know, for due diligence purposes. >> Well, they're not even public anymore because >> Yeah. No, no, I know. No, no, I know. But my >> You should just just like flash it. Yeah. [laughter] >> Just do Yeah, exactly. Um, all right. For why we're here today, you know, you had an idea that it kind of fits what you're looking at in this example of uh this theme along fallen angel lines. You know, it's actually a company you I was, you know, I did some research today. I don't know if you knew this. I did I did a little research. Um, and you actually wrote about this company back in January 2024 on your site. So, what's the idea? Why is this a a uh fallen angel in your opinion? >> Yes. So, as I mentioned at the beginning of our conversation, I think fallen angels are considered fallen angels not because they just went down in price or in valuation, but because they were well known to people. And the company that you know, like I I wanted to chat with you about is is a well-known company. It's it's it's Weight Watchers. Um, ticker WW. It is quite literally a household name. Maybe that's like Gen Z or Gen Alpha, but if you're older than probably like 25, you know who Weight Watchers is. Um, you know, they've been around for six decades. Six decades of doing one thing and one thing only, which is help people lose weight. That is it. They have not done anything else besides helping people manage manage manage their weight. And we actually took a short position in uh I think it was like August of 2023 and that was when like the GLP1 hype was like slowly coming coming online right like no if you look at the charts between Novo Norris getting Lily no positions in either uh their their their stocks were just going through the roof because everyone's like GLP1 drugs are the future um at the time Weight Watchers had acquired and I think it was in February of that year they acquired a startup that was doing GLP1. So, they were actually going to be folding it into their business and the stock rallied I think from like three bucks to like 12 at its peak. Um, and I didn't catch the top. Um, I think it was I was like 10 10% within the top, but I was like there's like no way this is going to work. Like it's just not like I'm I love what they're doing. I understand why they're doing it. And in my January note, I I wrote it all out. I was like, listen, this is what they this is what's happening. this is what they say is going to happen. Here is all of the math. The math ain't m nothing, you know. There's nothing. There's like it's just not going to happen. Um the speed of which this company cuz Weight Watchers helps originally helped people lose weight without medication. That was their um their bread and butter. It's like we don't need medication for you to lose weight. We have behavioral behavioral um change um health changes man like you know mental eating whatever um so we don't need medication you can lose weight without it which is benefiting for people who don't want medication um it's also cheaper uh however over time you know that company has seen a subscriber base churn um Oprah once got involved pumped it up a little bit and then eventually started going back down again she sold off her position and donated the rest rest of her shares uh to charity. And 2023 when they bought this company, that was the new beacon of light. That was a Weight Watchers admitting that the future is actually going to be medication, which it is. There's no debate about that. And then b it's kind of like a serious acknowledgement that the the behavioral only side uh is going to continue suffering and like there's no stopping that bleeding, at least at the time. And then to add the sweet little cherry on top, they were sitting on over a billion and a half dollars of debt set to mature in a couple of years. And uh in my in my report, I said that there's no way they're going to be refinancing this. No bank is going to allow them to refinance this because they're just they don't generate as much cash. The interest is killing them. The the maturity dates are too soon for them to even make a dent in that thing. Um so it's going to be a problem. And from January, I think it was at like six bucks. If you looked at it, you'd have to quote me on that, but I think it was like six bucks and change. Um, down from the September highs and then it filed for bankruptcy in in May of this year. And, uh, we were right about that. Um, but speaking of fallen angels, it's not what I've come to realize, and I've learned this over the years because I've failed to realize it until it's too late. Once something goes down, that doesn't necessarily mean like you take the win and move on. Sometimes when things go down, uh, you can catch them on the way back up again. Um, I mentioned earlier before you were somebody with Robin Hood, again, no position in that, but if you were somebody with Robin Hood, like we shorted Robin Hood, too, and then left it alone. shouldn't have done that, you know. you know. Um, so then when Weight Watchers happened, we we we we heard about their bankruptcy, chalked it up as a win. Great. We're right. Awesome. But then, um, I won't I won't name him, but if he's going to be listening to this, you know, I know I know he listens to your podcast, so if if he's listening, he uh he texted me one day and he's like he's like, "Hey, man. Do you know Weight Watchers?" I'm like, "I know a lot about Weight Watchers." He's like, "Yeah." He's like, "Dude, they're just wrapping up their bankruptcy filings and I think there's something going on here. I think you should take a look." And I was like, "Oh, okay." started looking uh at their bankruptcy documents etc. And I was like, "Oh, I think you're right. Um, I actually think there is something here." And this is one of the few times where I've actually reversed going from uh shorting a stock to going long it, especially given the situation as a bankruptcy. Um, because I thought, you know, there could be uh new life to this company in a in a much like meaningfully different uh capacity than it was just a few months ago. Um, but that's kind of like the context of that. Um, I mean, obviously I can dive into specifics, but I'm not sure if you want to touch on anything first before I >> No, that I mean that's some great background, but like so let I'd love to hear now dig into, you know, your the long thesis. I guess I you know, now now that you kind of took a deeper dive after the bankruptcy, you know, your friends was like, "Hey, this is what's up." Sure, I have a feeling I know who it is. Um and [laughter] who was our special situations friends out there that only look at stuff? Um but um yeah, I mean what was what was the long thesis then that you started to uh put together from what you saw that was happening? >> So this one was this one was easy because the reasons why we shortened it, right? the original core business declining. Um the speed of their medication side of the business not being enough, the uh the overhang of their debt like quite literally suffocating them. Um was the reasons why we actually flipped um because thing certain certain things had changed that in our opinion um meant that the upside was well was well above what the downside was. And what do I mean by that? So at the moment through the restructuring I mentioned before they had over a billion and a half dollars of debt. Actually it was like $1.6 billion in debt. Through the restructuring they eliminated about 1.125 million of it. Um so after bankruptcy they cut it down from 1.6 to $465 million. Right off the bat, their interest expense annualized uh and normalized post post bankruptcy cut its interest expense from $100 million a year to about $50 million a year. So immediately they have $50 million in in in free cash flow to to do to do things with, right? Um amazing. Um the the core business is still declining, but it's hopefully going to be steadying. uh through the end of 2026. I think personally I think that's when it should normalize out. And the clinical side with the adoption of GLP1s is still growing um uh you know meaningfully. I mean like over the last quarter I think it grew like 30 over like 30 something% um over the last quarter year-over-year which is great. I mean it's still small but it's great. Um without the debt overhang they have breathing room. Uh and there's a very very very interesting part of this post bankruptcy uh approved trade though because in their filings I think it was approved by the judge there is a c there's a mandatory cash sweep provision embedded in the contract and when you look at the contract um the see the bankruptcy documents what what What's interesting here is that when I mentioned before the original debt was maturing in like 2028 20 or sorry 20 2030 so they only had like a number number of years before it expired $1.6 $6 billion is a lot to refinance in the bankruptcy proceedings. The cash sweep meant that every dollar in the balance sheet on an annual basis like 30 days after the the first quarter or 10 days after the first quarter, I'm sorry, um would be used as a mandatory payown on the debt. So the 465 million, you know, that's that was remaining at a 5-year term. So it expires in 2030, but because of the cash sweep provision, that meant that the company was going to be actively deleveraging their balance sheet at a faster rate, a potentially a faster rate than what was outlined in the bankruptcy documents. And I don't know about you, but if I just had a company who originally had 1.6 6 billion in debt and was drowning under it. Got it cut by basically, you know, a third or sorry, to a third and then still has a clear path to becoming debtree in five years while still maintaining a $100 million cash balance every year and opening up about $50 million uh free cash flow to continue investing in the business every year. Um, yeah, that's pretty interesting. That's a that's a interesting deleveraging special situation. Um, and when you think about it and it's how you do the math, anybody can do the math. It's Excel. If you did nothing else to this business, if this business did not grow past what the bankruptcy documents said, if it does not um like no, not even topline margin expansion, nothing. I mean, you take it at face value, which if anyone who's listening, if you're unfamiliar, bankruptcy approved projections are meant to be conservative by nature because your lenders effectively take over the business, which it did. They gave they gave the lenders 91% of the business post bankruptcy um and a path to being able to pay it back, right? All right. So, they had the mandatory cash sweep and if you did nothing else, naturally removing the debt off the balance sheet would increase your equity value. Um, so, uh, in my report that I sent out a couple months ago, I said, listen, doing nothing, you're getting about over 30 bucks a share in equity value just from it doing nothing other than what it said it was going to do. Um, which was super super interesting to us cuz I didn't have to bake in I didn't need to bake in upside for this to work. It was like you're reading a book, here's a story, you know, the ending and uh if it plays out, it's going to be a good read. Uh, and that's what that's basically why we we got interested in it. Um, and there's actually one other thing I was going to mention too, uh, is that, um, there there are caveats to this though, which people need to be aware of. Usually when lenders take advantage or sorry not take advantage when lenders take over a company for whatever rhyme or reason they may or may not be in it for the long term meaning like if there's like increased volatility or they need to like draw down uh for tax loss harvesting or like whatever it usually could be a slow bleed which if you look at the chart you know there's definitely been some been some selling despite great Q2 besides great Q3 there's a lot of like we'll wait and see and people just taking money off the table. But big picture-wise, the underlying contract, that credit agreement that I was just talking about, the reduced the reduced uh debt levels, the increased cash for reinvestment, and the emphasis on further medication adoption to offset the core business decline on a 20 I think $70 million company right now. Uh with a deleveraging process in place that could yield, you know, over 30 bucks a share in equity value. It looks really great. It's only trading at like four it's like 4.2 times IDA or it's like five times free cash flow. Like it's like really really quote unquote cheap when you compare it to other things. >> So what's stopping private equity from taking this out now before they have to pay full rate? >> So there there are so there are um in in the in the debt there are provisions for the lenders. >> So when we talk about aligned incentives they're here. Um the bonds are callable meaning like if even if Weight Watchers somehow produced like a boatload of cash and wanted to pay back the debt faster there um there are points involved for for uh paying it off early. If they raise any money uh the money would have to go to to the lenders first, right? So there's no point in doing that. Um and if they even sold any assets to raise cash or whatever, it would also go to the lenders. So, it's basically like why um and you know, no one's going to be taking this thing out. I would love for someone to take it out, but no one's going to take it out. Um is mainly because the fact of like you're still having a core business decline, but you're having a new side, I got to say side business, you have a new medication side business that's growing very quickly. Um, so it's not I don't think it's ripe for like a takeout, but it is ripe for people who see it as a company that was once great and has a new lease on life, right? I think I've recently shared a report on my own um site that called it like a phoenix rising from the ashes because like kind of it's kind of what it is, right? Um there's nothing wrong with the way they do business. Like again, six decades, a six decade track record of proving they know how to help people lose weight. There's no issue with the product. There's no issue with the service. It's just a matter of like, hey, things happened. Management did some things, you know, years ago, decades ago that led to this May event. And now with um the new CEO in place, she's been there for a little bit, Tara. Um you know, she's very she's very vocal about what the future's going to look like. Um they're doing a bunch of different strategic initiatives to like bring new life uh to the to the not only the brand but like the the experience right through mobile app through online etc. So like Weight Watchers isn't like a old boomer related brand anymore. It's like trying to get more younger people involved because that's you know who the next people who are going to be you know in line to to want to lose weight uh will come from etc. Uh so it's it's it's an interesting story that I think you actually have to believe will occur and I think we got a real taste of that on the Q3 earnings call uh because I think a lot of people entered that with pessimism and uh we were all surprised about how well it actually was. Um so 2026 will be really interesting because there's other few catalysts that are going going to happen um that I think they're they're well positioned to capitalize on as well. So there's a lot of there's a lot of upside risk here. >> I'm so curious how I mean because listen I'm part of that you know I'm 37 so like I'm part of that generation that grew up seeing all the Weight Watchers commercials and all that stuff. I'd be really curious to see and and you're right like it was all about like you know managing portion sizes and sending you know me and so >> the point system. >> Yeah like the points. Exactly. So, I'm so curious how, you know, they're going to marry their like core legacy business with now this GLP1 product that they're sending out there where I mean, how are they marketing it really? I honest full disclos like I haven't looked and see how they're marketing both like is it like a look, our core business works for those that are like really focused on wanting to do lose weight like how we've traditionally done it. for those that it just it it's still tough on the behavioral side. You know, we have this as well. Like, is that how they're marketing, you know, both sides of the business? >> I think that's a I think it's a real benefit to them because what what originally was a hindrance only being behavioral, no medication is actually going to be helping them going forward. At least that's what we that's what we believe >> because the re here's the reality and there's no there's no sugar coating it. Everybody who is obese, would like to lose weight or oh, sorry, overweight or obese, would like to lose weight, would love a magic bullet. Actually, for apply it to anything in life, I wish I just had a magic bullet. Like, I wish I could like, you know, take a pill and then like I grow like three inches taller and become over six feet. You know what I'm saying? Like, I wish I wish that could happen. Is it going to happen? No. when it comes to weight loss, if I could take a pill or if I could take a shot and on a on a regular basis and I can lose weight over time, I will do that. Uh, which millions of Americans I think the I think the most recent stat was out of the adults, I think one in eight are on GLP1s or something. It's insane. Um, so the incentive is there, but they want the quickest route to the cookie jar, right? Um there's a problem with that though and I think this is where Weight Watchers really really stands out because if you take GLP1 or the medications which are mainly GLP ones um number one it takes you number one it takes you time to lose the weight. So they they base everything off of a year's time frames. That's what that's when the studies uh were done like some are like 68 weeks, some are like a 54 weeks um you know depending on on which you know which one you're looking at or which trial you're looking at. But usually give it a ballpark in about a year is how long it usually takes to to lose the weight. Here's the problem. Number one costs a lot. If you're paying out of pocket, it's it's it's pretty pricey. Um, yes, prices have come down more recently because kind of Trump's like strong armed these companies to like lower the pricing, but even then it's not it's not nothing. Um, you know, like even at like 300 bucks a month for a year, you know, it's that's a lot. You know, that's for an average American that's a lot out of pocket. Number two is um on the pricing side as well. If insurance does cover it, now the insurance companies are on the hook for this thing uh with like a small co-ay [clears throat] which is great for people like you and me, not you and me, but like other people every people. But now the insurance companies who people are already complaining about that their premiums are so high are like now we got to pay for this thing too and like all obese Americans are going to be on GOP ones and now we need to fit the bill. So that's not good. And then three is that once you stop taking GLP1s, 50% of people, like half, like literally half, either regain all of their weight back or a portion of their weight because nothing actually changed with you besides you just continuously injecting yourself with these GOPs. So if that were the case, you basically have come back full circle. Now, let's come back full circle. If that happens, then what? Insurance is going to then do a second round of GOP1s for you. No, it's going to cost them too much money. Are you going to then spend out of pocket to do a second round of uh GOP1 cash pay medications? Probably not, because it is it's just eating into your it's it's a forever drug because you can't change your life habit for for half of people and still lose the weight. But what does Weight Watchers do? Weight Watchers has already proven that it can make you lose or help you lose weight uh on the behavioral side. It can change your habits. It can change the way you think about food. It can change the way you think about diet, exercise, etc. So, you asked me before about like what the what the value prop is between one or the other. The value prop is they're becoming a holistic wellness company. Holistic meaning they can help people who don't want medication. They can help people who only want medication. And they can help people who want to combine the two. because results have shown that um combining the two like on average if you're just on GP1 medication you lose about 15% of your body body weight um uh over a span of a year it's like 15% on average on like wobbi if you combine the two you lose closer to 20%. Because you're actually changing your habits and you're actually like making more conscious decisions in your life that will stick around once you're done. Um, so Weight Watchers has the value benefit of people who actually want to not only lose more weight, keep that weight off, and then they have an an additional value proposition from these insurance companies who are like, we can't keep footing the bill of these drugs because eventually these people are going to come like right back on it, and then we're out of pocket again. That's actually why a lot of insurance companies have actually removed it from their plans because they cannot they cannot afford it. A lot of state state insurance plans have removed it because they cannot cover the cost. It's too much. But what if a company like Weight Watchers who actually has some deals in place with like United Health says, "Hey, we have a proven system that yes, you will have to pay for it, but more often than not, you'll only have to pay for it one time or like maybe one maybe one or two times because of the fact that our behavioral changes will stick with the person once their medication regimen is done." And then there's your value prop. you don't have to if you you don't have to worry about um you know people coming back for round two or three or whatever because we've rewired their brain and how they think about things. >> Um threw a lot at you. But yeah, that's >> No, no, all good. I mean, listen, I I'll I'll you know, normally these types of you know, Andrew does an incredible job with these types of podcast, so I'm doing my best Andrew impression as much as much as I can because he's he kick he kicks ass in this stuff. But, you know, um, just to kind of play devil's advocate with with, you know, on the on the bull side of the thesis. >> Yeah. >> Where does this fall into value trap territory? You know, everything sounds great, all that. You know, there makes sense what you're saying, but where at h how how does this just totally blow? >> No, it's because it's fair because it sounds too good to be true, right? like everything I probably told you just like then why is the stock like not like shooting to the moon? Number one, um like I said to you before, there are going to be some force sellers involved. Um I remember posting on Twitter the other day that I've I've been posting about it. I'm like this is just annoying because people are selling down. I don't like I don't know who's selling down but I know somebody is. And then when all the hedge funds released their 13Fs, you know, I saw like at the top of my list um um was it Mellan? it was um um uh Medallion or or somebody else. Like they had a they had a they had a 5% position in like August, cut it down um to like less than half of that by the end of the quarter. Like, okay, there's one guy who's selling down a couple hundred thousand shares um alone because for whatever reason. So, there's that. So, the going against the bullcase here is number one, you're probably going to have some level of a drip. Um, which which sucks because you you can't you don't have control over that. It's just people who again micro cap company, small liquidity um for for the amount of shares that get traded and it's probably going to keep, you know, moving up and down depending on where the wind's blowing one day. But then the real the real crux of this is the exact same reason why we shorted it in the first place. Do you think that the company do you believe I think do you believe that the company will be able to plug up the holes in the core business so that it stops declining and at the very least plateaus uh because that's where their cash comes from and do you also believe that the clinical side so the medication side of the business the GOPs are going to accelerate in an environment where the price is coming down because you know that Trump RX and and um Medicare, Medicaid, etc. And also there's this flagrant what I believe IP infringement out there with compounded GLP1s. Um do you believe that they'll be able to navigate all of that? Um because Weight Watchers does not prescribe compounded GLP1s anymore. They stopped doing it in May, so they don't have that added benefit anymore, which is why everybody was concerned when Q3 came out, which was better than expected. Um, it's like, do you believe they'll be able to execute on it? I believe they will. Um, and the added benefit there is if you're worried about that in the future, know that the looming catalyst in 2026 is the release of oral GLP1s, which I don't know if you're afraid of uh, you know, needles, Bobby, but I'm not the big I'm not lining up to get a shot in my arm or or you know, like my hip uh, you know, just to lose weight, but yeah, sure. I'll take a pill. um which immediately opens up the market to people who are like on the fence about injectables um or are on injectables but would rather take a pill. And Weight Watchers has already announced that they they they're going to be selling uh Novo Nordisks oral GLP1 when it gets launched in in Q1. Um which is great because they're like one of the few people who have announced that. Um so your downside here is yes it's cheap on a on a multiple basis. Yes, it's it's conservative on a projection side basis if you're using the bankruptcy proceeding documents, but do you think it's actually going to happen? Because if it does happen, a lot of people are going to make a lot of money in this. And if it doesn't, that's where the value trap comes in. And I remember talking um um to to to Jeremy the other day um um for people who know him on Twitter, but uh he's like, "Yeah, it could just be a melting ice cube. like you just buy yourself a little bit more time and then it eventually goes right back to where it just came out of bankruptcy. Um I don't believe that's the case otherwise I wouldn't put my money in it. But uh that's that is the real rucks to the to the bullies is is will it actually happen the way you think it's going to happen. >> Absolutely. Well no Paul you did a great job covering all sides there. I mean on on way and I invite everybody go read his writeups. You know he's he's putting out a lot on there on uh you know everything having to do with Weight Watchers. you know, taking a step back and looking at the, you know, the the big theme here of, you know, fallen angels and, you know, market missing, just seeing the big headline of, you know, bankrupt for using them as an example, bankruptcy and then, you know, uh, stock taking a taking a dive and, um, I mean, the hard part, I would imagine for most maybe most investors, maybe they're just either getting their start or, you know, like, all right, well, I I see there might be an opportunity here, but, man, like just listen to Paul for the last 30 minute like that that's that's months of hard work to uncover all of that to even put together that you know on on the bull and bear side of you know you know why it's interesting to for you you know so I mean I guess really the main question is for those that are still skeptical of that I mean at the end of the day everybody has their own styles and like you can choose to look at fallen angels or not you know but why why should folks you know still really like you after hearing all that and the amount of work that you put into why is it still worth going through all the work to really I mean obviously it's to make money but you know I mean it it I guess really the main question is like there's only so many opportunities out there to make outsiz returns right and so there it can be worth it to go this deep into it to kind of see if there is something there but I mean for you like I mean I I would imagine part of it is the fun, but I'm asking like I don't even know where the question is going, but I think you >> I think I [laughter] do. I think I do. So, [clears throat] I mean, I've been >> I'm still working on this whole interviewing thing. I mean, I've been doing this 10 years. I'm still, you know, still still working. >> I love talking. I love [laughter] talking to you. It's like it's always it's always a conversation, which is why I love it. Um it's never just like question, answer, question, answer, question, [laughter] answer. It's not it's not like that. >> Um and I you even gave me like an outline and I'm like I'm like and you're like, "Yeah, we'll stick to that." And like in my head I'm like, "No, we're not going to stick. Definitely not single. [laughter] >> Um but no like so like for for context at least for Cedarville Capital Management it's you know multi strategy. So like long short special situations which this one is because it just came out of bankruptcy you know trying to trying to turn itself around. Um everybody wants to make the most money possible right and I always want to think they found the one that's going to be like yeah this is a five bagger 10 bagger you know like whoever that guy is Eric 100bagger. Um, you know, everybody wants that. And but here's what I've learned from my I would say short stint in investing and there's people I spoken with who just been a lot longer than I have. Um, I optimize everything uh even we can talk about maybe at a later point in another episode like on the risk side of of how well I can sleep at night. If I am in if I am staying up at night worrying about something either I don't know what I invested in or I invested too large into it. Um so when it comes to opportunities they have to allow me to sleep at night. Secondly is that well also just for portfolio diversification because it is multi strategy being a part of these special situations that you know you you you can put a certain amount of capital [snorts] in it as a portion of the portfolio but then get outsized returns if it works out is also what I'm on the hunt for right but in order for all of that to happen you know cohesively for me to be able to sleep at night for me to be able to take these positions etc I need to be able to understand it and not just think I understand it. And the quick comparison I'm going to draw is like the hottest thing right now is AI. To be honest with you, I have seen all the articles, the the the Twitter feeds, the posts, everyone's like up and up in arms about it. I could not tell you like the first thing about AI. I have to ask my friends who are more involved because it doesn't click with me easily. Like I I doesn't I don't have an edge there. But understanding a business where it's literally like, hey, you're helping people lose weight through medications or not, that's literally all it is. And I'm sure if you can go online and figure out the rest because it's not rocket science. So, it's like if you're trying to find um companies and spending your time, money, resources, whatever it is to find outsized returns, I always start with where I think I have an edge. And where I think I have an edge is finding companies I can easily understand or will take me a minimal amount of time to ramp up to understand them. Weight Watchers was one of them. Um, and especially from a post bankruptcy where I had to like dive through all these documents and like figure out what the hell was going on, it did not take that long. Um, so when it comes to when it comes to what you said, like I think people should spend time where they believe they have their edge and not necessarily where the hottest thing is because more often than not, the hottest thing has already kind of had a lot of the alpha juiced already versus the whole reason why we're in micro cap land is the whole is because people aren't looking there, right? Um, and that's why a lot of these companies, for lack of better words, gets neglected. But that neglect can really lead to some phenomenal returns which I know you've called out. I know Micro Cap Micro Cap Club has called out um from from their from their uh um their members. Um so that's kind of where you know I stand on that is like I need to be able to know it or you just need to be able to understand it very quickly and this is just one of those opportunities where you don't need to be smart to to understand the story here. >> Dude, that preach I I just preach brother. Well, dude, I I think we covered this. We covered a lot today. That's and that was kind of a perfect place to end it. So, you know, Paul, with that, where can our audience go and find more information on you, get in touch with you as well as Cedar Grove? >> Yeah. Yeah. So, I mean, I'm very active on Twitter. Um, it's literally just my name, Paul Sarah. Uh, so you can find me there. Um, if you want to go, uh, look at our past work. Um, it's actually on cedargrove.com. Um, and then if you would like to find out more about the um um like just us um it's uh cedargrovecm.com. That's where our main website is, but our research is separate. So uh you know if anything take a look there, poke around further discussion today with Bobby just look at it. You don't need to do anything else. Just look and decide for yourself. But uh it's it's it is a very interesting opportunity. >> Very cool. Well, Paul, thank you so much for joining me today. I really do appreciate it. Come back anytime with another uh fun idea and talking through stuff and we'll talk big picture and then get into the idea and do that all again cuz that was a lot of fun. >> Always a pleasure talking to you, man. >> Thanks, dude. [music] [music] >> [music]