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Am I Catching a Falling Knife?

Am I Catching a Falling Knife?

Here is the first stock in my High-Risk Hank ETF

Hank Svec
December 28, 2025

About 10 years ago, we started investing in high-risk start-ups. While we started with a platform based in California back then, we moved to FrondFundr when that was created a few years later. Since then, I reach out to companies and founders after watching them on The Dragons or reading about their startups in trusted online news outlets.

It’s been quite a ride. From a 40X fake meat company to a number going to zero, here is my stat so far. For every 10 start-ups or high-risk investments, 3-4 go to zero. The next three return the initial investment capital. So those are break-even. The next two return 200% or more, up to 400%. One out of the 10, if we are lucky, does incredibly well, as did the fake meat company when they went public.

Overall, it’s about a 14% return so far this year. It’s a rush, but often painful when something goes to zero. I understand that is the average for most angel funds. In our private fund, we have some 25 startups. The latest is my own, AskHank.ai. It will be my last angel investment in a start-up.

But there is a way to get a brain rush, some excitement, and the pain of a high-risk second- or third-stage company that I’m working on. I call it my high-risk ETF, where I am on the hunt to own stock in 5 publicly traded companies with the risk of going to zero or a good return. I am using Ask Hank to help, but as in all cases, it’s my final decision.

I caution you to watch this first and not dive in, because the ride can be very painful. When investing in such start-ups, the risk is immense. You have to be prepared to watch them all go to zero. In my Hank High Risk ETF, I’m focusing on healthcare-software and, of course, Real Estate. Here’s my first pick as reviewed by AskHank.ai. When I first took a position, it was just over $9.00 a share. It now sits at about $5.50. Am I catching a falling knife? I’m not sure, but I bought a bit more at $6.00 a share.

Coveo Solutions Inc. (TSX: CVO)
Full Hank Method Analysis – November 28, 2025

This information is for Educational Purposes only. Do not make portfolio changes without speaking with your financial advisor. I am not a financial advisor.

1. Business Overview

Coveo Solutions Inc. (TSX: CVO) is a Canadian enterprise software company that provides an AI-native “relevance” platform. Its products power intelligent search, recommendations, personalization, and now generative-AI experiences across e-commerce, customer service portals, digital workplaces, and corporate websites.

The business model is predominantly SaaS (software-as-a-service), with recurring subscription revenue, complemented by implementation and professional services. Revenue is reported in U.S. dollars and the company prepares its financial statements under IFRS.

2. Hank 5 Growth Factors (Last 3–4 Fiscal Years)

Using Coveo’s FY2022–FY2025 IFRS results as reported in official investor-relations press releases and filings, the growth picture is summarized as follows (figures in USD millions unless noted):

Factor	FY 2022	FY 2023	FY 2025 (latest full year)
Revenue (Total)	86.5	112.0	133.3
SaaS Subscription Revenue	77.9	103.0	126.6
Net Income (Loss)	Distorted by one-time gains	-39.7	-13.8
Dividend per Share	0	0	0
Book Value / NAV	Positive equity; early-stage SaaS	Equity growing	Equity growing; no dividend

Approximate growth metrics based on FY2022–FY2025:
- Revenue CAGR (FY2022 → FY2025): ~15–16% per year.
- SaaS Subscription Revenue CAGR (FY2022 → FY2025): ~18% per year.
- Net loss has narrowed significantly: from roughly –$39.7M in FY2023 to –$13.8M in FY2025.
- No dividend is paid, so dividend growth is 0%. Book value appears to be growing modestly as losses shrink.

3. Key Metrics Snapshot (Late 2025)

Selected current and trailing metrics (approximate, from secondary data providers cross-checked against filings):
- Share Price (CVO.TO): ~C$5.50–5.60 range.
- Market Capitalization: ~C$530M.
- Revenue (TTM): ~US$141M.
- Net Margin (TTM): roughly –15%.
- Book Value per Share (latest quarter): ~US$1.18 equivalent.
- Price-to-Book (P/B): ~3.4x.
- Price-to-Sales (P/S): ~2.5–2.7x on trailing revenue.
- Debt/Equity: ~9–10%, with substantial net cash on the balance sheet.
- Free Cash Flow Yield: low single-digits, but positive.
- No dividend; capital returns are via issuer bids and buybacks rather than cash payouts.

4. Hank 10 Rules – Scoring for Coveo

Scores are on a 0–10 scale, where 10 is outstanding and 5 is neutral/average. They combine qualitative judgment and quantitative signals from the last 3–4 years.

Rule	Score (0–10)	Notes
1. The Hive Must Come First – Growth & Insider Alignment	7	Revenue and SaaS subscription have grown nicely, though growth has decelerated; net losses are shrinking and operating cash flow is positive. Insiders use buybacks (SIB/NCIB).
2. Nature Knows Best – Simplicity & Durability	8	Clean, focused SaaS model around AI search, recommendations, and GenAI. Business model is easy to understand.
3. Recycle – Debt & Capital Discipline	8	Low leverage, strong cash balance, and positive operating cash flows. Capital returns via issuer bids and buybacks.
4. Focus, Specialize, and Be Efficient	6	Very high gross margins (~78–79%), but operating and net margins still negative. Efficiency is improving but not yet great.
5. Live in the Right Place – Moat & Geography	6	Attractive AI/SaaS niche, but crowded competitive field (big tech and other SaaS). Some moat via data, integrations, and relevance IP.
6. Little Things Over Time Become Big Things – Compounding	6	Path to compounding exists if growth re-accelerates and profitability emerges, but still early and dependent on execution.
7. Be Strong, Fight Only When Needed – Prudent Divestment	7	Management is sunsetting the Qubit platform and refocusing resources on the core platform; disciplined pruning of weaker lines.
8. Probability of Success – Industry Balance & Resilience	6	Secular AI and digital-experience tailwinds help, but macro cycles and tech competition keep risk elevated.
9. Constant Feedback – Governance & Adaptability	7	Management appears responsive, emphasizing operating discipline, positive cash flow, and adapting quickly in GenAI.
10. Listen to the Buzz – Market & Sentiment	6	Analyst sentiment is generally constructive, but the stock still prices in future execution; earnings are negative and volatility is material.

Overall Hank Score (average): approximately 6.7 / 10 (about 67 / 100).

5. Hank Cap Rate, Buybacks, and Dividend Safety

Hank Cap Rate (Cash Flow ÷ Stock Price):
- Using approximate free cash flow per share in the low-teens of cents and a share price in the mid-C$5 range, the cash-flow yield is in the low single digits. This is acceptable for a growth SaaS name but not a bargain for a value investor.

Buyback Effect:
- The company has used a substantial issuer bid (SIB) and appears to be running or planning normal course issuer bids (NCIB). Recent data suggests a buyback yield of a few percent in some years, which is meaningful but not extreme.

Dividend Safety:
- No dividend is paid. All capital is recycled into growth, R&D, and occasional buybacks. Traditional dividend safety metrics do not apply here.

6. Risk Checks – Balance Sheet, Bankruptcy, Trade, and AI

Balance Sheet & Bankruptcy Risk:
- Altman Z-style composite scores from secondary sources are low (signalling statistical distress), but this must be interpreted in context: Coveo is an early-stage, negative-EPS SaaS business with substantial net cash, so traditional Z-scores tend to look harsh.
- With low debt and good cash, short-term bankruptcy risk appears low unless the business model deteriorates sharply.

Tariff / Trade Sensitivity:
- As a software business, Coveo is not directly exposed to tariffs on physical goods. Risk is more around global IT budgets and currency.

AI Disruption Risk:
- Coveo is part of the AI wave rather than being disrupted by it, but faces intense competition from large suites (Microsoft, Salesforce, etc.) and other AI search / experience platforms. The key risk is not that AI kills the business, but that competitors capture the lion’s share of economics.

Industry Resilience:
- Enterprise software and digital experience platforms have attractive long-term demand, but contract cycles, budget cuts, and competition can cause volatile bookings and margins year-to-year.

7. Graham-Style Lens (Value Investing View)

From a classic Benjamin Graham perspective (balance-sheet strength, earnings stability, and margin of safety):
- Earnings: Coveo has not yet produced a stable record of positive earnings. That alone would disqualify it for a strict Graham-style defensive portfolio.
- Assets and Book Value: The business is asset-light and driven by intangibles; traditional book value is not a strong anchor. With a P/B around the mid-3x range, this is not a deep-discount-to-assets situation.
- Dividend: There is no dividend, so conservative income-focused investors receive no cash yield.
- Margin of Safety: The investment case is about future growth and operating leverage, not about a bargain price relative to current earnings or assets.

Graham Verdict:
- For a strict Graham defensive investor: Coveo does NOT qualify.
- For a more enterprising investor: Coveo could be a small, speculative position in a diversified portfolio, provided you are comfortable with negative earnings, AI-competition risk, and the need for continued execution.

8. Munger Inverse – Why You Might Avoid or Size Small

When you invert the question and ask, “Why shouldn’t I buy Coveo?” the main points are:
1. The company is still losing money on a net-income basis; the path to durable profitability is not yet fully proven.
2. Revenue growth has decelerated from 30%+ to mid-single digits, at least temporarily. If growth does not re-accelerate, the equity story weakens.
3. Competition in enterprise AI search and digital experience is fierce, and many larger players have deeper pockets.
4. Valuation is not dirt-cheap. Even after the pullback, you are paying a meaningful multiple of sales and book value for a business that is still proving out its earnings power.
5. A lot of the thesis rests on management continuing to execute and on AI demand staying strong. Any stumble in either area can hurt returns.

A cautious investor might choose to wait for:
- Several consecutive years of positive net income and free cash flow; or
- A cheaper valuation; or
- Clearer evidence that generative-AI solutions are driving sustainable, profitable growth.

9. Overall Take – Investor Fit & Position Sizing

Putting all of this together under the Hank Method:
- Strengths: Strong gross margins, improving cash flows, low debt, a focused and relevant AI-SaaS niche, and credible management actions around capital allocation and product focus.
- Weaknesses: Still negative net income, decelerating growth, and an absence of a clear, wide moat versus giants in the AI and CX space.

Who this may fit:
- A growth-oriented or enterprising investor who understands SaaS and AI, willing to accept volatility and execution risk, and who sizes the position modestly.
- Someone building a “satellite” allocation around a more conservative core, where Coveo is one of several AI/SaaS holdings.

Who this likely does NOT fit:
- Conservative, dividend-focused investors.
- Anyone needing stable, near-term cash flow from their investments.
- Investors who cannot tolerate share-price volatility or evolving narratives.

Position-sizing mindset: treat Coveo as a higher-risk, higher-upside name. That usually means a smaller weight relative to stable, profitable compounders in the portfolio.