Remitly is poised to become the global leader in cross-border digital remittances. While consistently gaining market share from traditional players like Western Union and MoneyGram, the ongoing shift from cash-to-cash remittances to digital transactions provides a significant tailwind. Although the company is only recently projecting positive cash flows, scale economics for digital remittances are attractive. As their volumes grow, they will continue to renegotiate lower variable costs and spread their fixed costs over a much larger customer base. Their digital solution, infrastructure, and fraud detection capabilities are
Richardson Electronics (‘RELL’) is a distributor that provides engineering solutions through systems integration, prototype design, and manufacturing. It is a distributor that acts as an extension of both a company’s salesforce and engineering force. In the last couple of years, RELL has seen rapid success with its new Green Energy solutions with offerings such as power management for ultracapacitors and electric train batteries. This segment has gone from $10mm to $50mm in the span of 3 years, representing 20% of revenues. The long-term trends of green energy should continue to benefit RELL as the number of...
Our research into Western Union initially sparked excitement due to its globally recognized brand and recent ~50% decline in stock value due to increased pessimism surrounding its longevity. Our gut feeling was that their sizeable digital offering was overlooked and disruption fears were overblown creating a potential opportunity for long-term oriented investors. Additionally, it seemed likely that actions Western Union had taken to reduce fees due to competition had passed its inflection point. However, upon conducting a thorough analysis, we realized that predicting Western Union's market share over the...
SES is up more than 40% since our update to add to the position. We believed there were numerous fallacies in the first report, and it was corroborated by management and auditors. Their responses to the short reports are available on SES imagotag’s IR page. The response of the company was empirical and emphatic. The short seller wrote a second report and we wrote a response to some of the points below. SES imagotag also responded yesterday to the short report in the same manner as the first and it can viewed here...
Titan Machinery ("TITN") is the leading dealer of CNH Industrial equipment ("CNHI"), boasting a network of approximately 120 dealerships spanning the globe. CNHI is the second largest agricultural original equipment manufacturer (OEM) worldwide, ranking behind industry giant John Deere. Titan Machinery operates its dealerships predominantly within the United States, offering a comprehensive range of CNHI equipment complemented by dedicated parts and service provisions. These dealerships function on a semi-exclusive basis with CNHI equipment. TITN has undergone significant operational changes over the...
There was a short report issued on SES imagotag on June 22nd, causing the share price to plummet 60%. We think this presents a good buying opportunity and are long SES imagotag. For background, SES imagotag has both Deloitte and KPMG auditing their books over the last 6 years (France requires that public companies are jointly audited). This is not to say that makes SES infallible, but we think it’s relevant as companies with misleading financial statements/fraudulent generally are audited by no-name firms coupled with frequent auditor changes...
Zumiez is a lifestyle retailer that has sold off 70% from 2021 highs due to recessionary fears surrounding discretionary companies and small caps. Despite facing several short-term macro and micro challenges, such as recessionary pressures and competition aggressively discounting bloated inventories, Zumiez has a proven track record of surviving and thriving through business cycles. They achieve this by selling exclusive apparel that customers want, managing inventory effectively, employing minimal to no leverage, and negotiating intelligent leases. The company has successfully executed these strategies for over 40...
Capri Holdings is a fashion company that owns brands Michael Kors, Versace, and Jimmy Choo. Capri Holdings began as Michael Kors which exploded onto the accessible luxury scene in the early 2000s, rapidly taking share from incumbents such as Coach. However, Michael Kors expanded into retail and wholesale channels too rapidly resulting in brand dilution. Long-time CEO John Idol is committed to restoring Michael Kors to a more premium brand by using a similar playbook executed by peer fashion brand Coach: increasing quality and marketing spend, reducing store footprints, and subsequently...
Gildan is the largest manufacturer of low-cost basic apparel for the Printware industry (see appendix below for industry primer), producing roughly 1.2 billion shirts per year. This is a company with a durable manufacturing advantage that we will own if the opportunity presents itself, but we are holding off for now and assigning Gildan a neutral rating. We believe their Printware segment is vulnerable to a slowdown in unit sales within the next 12-24 months and their Branded Products segment, sold through brick-and-mortar retailers, is in a secular downtrend. Gildan’s culture is optimized for manufacturing...
Natural Resource Partners is an MLP that owns the mineral rights to roughly 13mm acres in the Appalachia Basin and Wyoming. Currently, their primary natural resources are thermal and metallurgical coal. Given the low-cost business of collecting royalties with a protected downside, an ownership stake in a low-cost producer of soda ash, and potential upside in carbon capture, we believe NRP is undervalued by at least 30%. Although coal is a dying industry, there are pockets of resilience that should prove durable for the near term, namely metallurgical coal production...
We have closed our PTON position, realizing a 60% gain. While the PTON brand remains strong, the momentum behind the much-needed cost-cutting measures appears to be slowing. Our original investment thesis was based on the belief that the new CEO, Barry McCarthy, would execute prudent cost discipline and right-sizing initiatives, which would enable PTON to survive and ultimately grow. This view was reinforced by several judicious divestments and headcount reductions that helped instill confidence in the financial viability of the company. Within approximately one year, the total costs declined from...
Investment thesis Endor (E2N:MU) is a premium simulation racing brand that has been growing revenues at a 30% CAGR over the last five years. As the dominant premium brand with about 40% market share, Endor stands to capitalize on the rising demand for sim racing. The industry is poised to expand as sim racing gains legitimacy with motorcar sports organizations coupled with the continued immersion of games. We believe Endor is trading at a discount to intrinsic value of at least 30%. Business Background Simulation racing (sim racing) is an…
SES Imagotag was up 62% in 2022. We have trimmed SES Imagotag as the margin of safety has decreased and the percentage it constitutes of our portfolio has reached above-healthy levels. SES saw an inflection in demand for their offerings as inflationary worries caused retailers to lean more heavily into electronic shelf labels as a means to increase productivity and profitability. To summarize some events of note in 2022: – SES is on track to have revenues of greater than €600mm in 2022-a growth rate of 45%. – SES signed…
American Outdoors was our largest detractor in 2022 being down 50% YTD. To recap some of the factors when we took a position in January 2021: Although revenues were predicted accurately coming out of COVID, operating expenses were not. AOUT has seen an uplift in expenses driven by increased freight costs, standalone expenses, and an expanded distribution footprint. This amount added up to roughly an extra $10mm/ year in costs; an estimated $25mm in earnings became $15mm. The lesson learned here is to be especially cautious about forecasting expenses on…
We added to META as a myriad of fears from regulation to TikTok to Zuckerberg having gone AWOL has reached an all-time high. Here is what the market thinks of Zuckerberg’s capital allocation (keeping in mind Zuckerberg has a phenomenal track record with monetizing the core business to purchasing Instagram and WhatsApp). The core business earns about 32B (using about 15B for maintenance capex). Between RL and growth capex, META is spending roughly 27B. Using a conservative 10x multiple on 2022 EBIT, one arrives at $320B. META currently trades at…
Core Civic (CXW) is the largest private prison company in the USA. CXW owns roughly 70k beds and primarily provides and/or manages facilities for ICE and USMS detainees, and state prisoners. This is not an article on the ethical merits of private prisons, but one on the fundamentals of the private prison business. Before delving into Core Civic, a primer on the USA jail system is helpful. There are three types of correction or incarceration facilities: federal, state, and local jails. Correctional facilities are concrete and steel structures that typically…
Peloton is one of the more polarizing companies we have come across. The two investing camps are of the opinion that PTON is either: a) a $2k coat rack or b) the best thing since sliced bread and will make all gyms obsolete. We find polarization to be a signal into the potential strength of a brand, it is not hate//love but indifference that kills a brand. Other polarizing brands are Tesla, Apple, etc. If nothing else it contributes to share of mind. The fitness industry has seen a myriad…
FB has almost half the planet in aggregate on its platforms (Facebook, Instagram, and WhatsApp). Although FB has compounded negative goodwill with endless scandals relating to privacy and manipulation of elections, and Zuckerberg is probably one of the more disliked people on the planet, we think FB is trading at bargain levels given the quality of the business. Q1 2022 earnings has shaken investors’ confidence due to low growth, and fear over ATT and TikTok. Can FB overcome short-term problems and continue to leverage its platform? There are primarily three factors to address with FB...
We exited LEU for a gain of 350%. Given the Russia-Ukraine war and the resulting sanctions, there is a risk LEU is restricted from obtaining separative work units (SWUs ) from Russia. This would effectively demolish its business. Given this uncertainty, we have exited the position. INVESTMENT DISCLAIMERS & INVESTMENT RISKSPast performance is not necessarily indicative of future results. All investments carry significant risk and all investment decisions of an individual remain the specific responsibility of that individual. There is no guarantee that our research, analysis, and forward-looking price targets…
We closed DLA for a gain of 5%. Relative to other positions, DLA is more illiquid and not as well positioned in an inflationary environment. DLA sells a commodity and with its heavy manufacturing footprint in a sustained inflationary environment, its margins would deteriorate significantly. Even if it can pass increased operating expenses onto the customer, its maintenance capital expenditures would go up considerably. Coupled with management’s recent caginess about its Direct to Garment (DTG) segment – which we believed was the primary value driver in DLA – and reluctance…
We closed out FREE at a loss of 30%. Although its licorice business is as dominant as ever, we have lost conviction in management’s ability to roll up brands. One-time expenses continue to exist (it has been almost 18 months since the acquisitions of Swerve and Wholesome brands) under the label “supply chain reinvention” accounting for $8mm in 2021 with other miscellaneous expenses accounting for another $8mm. For a company generating around $40mm in EBIT, these are not small expenses. These expenses are likely an artifact of the legacy brands…
We closed out FC for a gain of 120%. FC is trading slightly above fair value and given the need to raise cash, we have decided to exit. The fundamentals of the business are still intact and their B2B software offerings will continue to do well. INVESTMENT DISCLAIMERS & INVESTMENT RISKSPast performance is not necessarily indicative of future results. All investments carry significant risk and all investment decisions of an individual remain the specific responsibility of that individual. There is no guarantee that our research, analysis, and forward-looking price…
Paysign (PAYS) was our most disappointing pick in 2021 with a 31% drawdown from our cost basis. We believed PAYS was undervalued as the share price had gotten hammered due to the deluge of stimulus along with COVID inhibiting donors from giving plasma. However the long-term fundamentals were still intact, plasma demand along with plasma centers was still growing even though supply had slowed. PAYS is a payment processor for the prepaid cards plasma donors get. It acts as a toll booth on the money donors receive/spend; the less money that…
Sharps Compliance (NYSE:SMED) collects and disposes of medical waste; this includes everything from unused medication to used syringes. SMED has received tailwinds from COVID as the vaccines have effectively doubled their medical waste from its two biggest clients, Rite Aid and CVS. We believe SMED is an interesting and simple candidate to research as part of our dive into the waste industry as there are only two medical waste players- Stericycle and SMED. This duopoly is dominated by Stericycle, the 1000 lb gorilla which has revenues 20x greater than that…
We have closed out ITI for a loss of 14%. The thesis for ITI was that due to their business footprint with thousands of government transportation offices across the country, they would directly benefit from the upcoming infrastructure bill. Our estimates turned out to be too optimistic about the size of the infrastructure bill and the subsequent uplift in demand that would result. Forecasting regulation is always an opaque exercise. In the taxonomy of investing errors, ITI would fall under “overpaying”. INVESTMENT DISCLAIMERS & INVESTMENT RISKSPast performance is not necessarily…
Delta Apparel (DLA) is a vertically integrated apparel company that is composed of three segments: a manufacturer of basic and private labels, apparel brands, and most recently a Direct to Garment (DTG) fulfiller for brands and retailers. DLA has leveraged its competitive advantages from being a vertically integrated apparel company towards DTG so that it can supply printed custom shirts to brands and retailers in a faster and cheaper fashion than competitors. Given the rapid rise of DTG and DLA’s competitive position in this industry, DLA has about one hundred…
The global retail sector is gargantuan, with about $30 Trillion in sales, the US makes up about 15% of this. The retail sector has been facing both revenue and margin compression as it is squeezed by rapidly growing e-commerce players. The future looks bleak unless the retail experience fundamentally changes. The digitization of retailers is looking to be the solution. It has the potential to increase revenues and margins for retailers while bettering the customer experience, a win-win. As this industry evolves, there will be a blurring between the retail…
Iteris is a transportation company that is a vertically integrated provider of hardware, software, and consulting services to the signalized intersection industry. They have their hardware in nearly thirty percent of the signalized intersections in the USA and process petabytes of traffic data per day. ITI is leveraging its hardware footprint and long-term adviser relationships with thousands of municipal agencies to upsell its innovative SAAS offerings. ITI has recently positioned itself as a pure-play transportation company and is well poised to ride the USA’s needed infrastructure upgrade and the coming…
We sold ECOM for a gain of 22%. Our thesis was that channel managers would continue to be prevalent for retailers and DTC brands as it was in their interest to spread a “fishing net” as wide as possible. We believed the e-commerce trend had been accelerated due to COVID and as the leading channel manager, Channel Advisor would stand to benefit. However, recent data suggests that e-commerce has not accelerated ten years into the future, but instead only 1-2 years. Along with Shopify becoming a more existential threat and…
American Outdoor Brands spun off from Smith and Wesson in July of 2020. AOUT is composed of both outdoor and gun accessory brands. Due to COVID and the subsequently accelerated affinity for outdoor activities, about half of AOUT’s brands have experienced triple-digit growth yoy. Given AOUT’s strong brands and their success in e-commerce and DTC, we believe AOUT is in a terrific position to take advantage of the record number of hunters and campers that have recently entered the market. Background AOUT is composed of an assortment of brands that…
Due to COVID, the e-commerce environment has accelerated about ten years into the future. We believe that with the reduced churn rate and more relevant offerings, ChannelAdvisor (ECOM) is poised to take advantage of the more competitive e-commerce environment. Background ChannelAdvisor is a market-leading channel manager that enables brands and retailers to integrate, manage and optimize their merchandise sales across a hundred plus online channels including Amazon, Etsy, Shopify, Google, eBay, Walmart, Facebook, and many more. ECOM offers solutions such as marketplace integration, analytics, digital marketing, inventory management, and drop…
Whole Earth (NASDAQ:FREE) is a consumer package company with multiple market-leading brands trading at around 10x 2021 earnings. Given its dominance in the artificial sweetener and licorice industries along with a rapidly growing natural sweetener segment, we believe FREE has a 50 to 100 percent upside from here. Background Whole Earth became public via the ACT II SPAC in June 2020. This acquisition bought two subsidiaries – Merisant and MAFCO – from Ron Perelman’s conglomerate into the public light. Under the conglomerate, these two companies languished in obscurity and funneled…
Centrus is a compelling risk-reward play on the future of US uranium enrichment. It is the sole US-owned uranium enrichment manufacturer, representing billions of dollars of IP and centrifugal technology. Combined with their recent price reset on their long-term contracts making them considerably more profitable, there are multiple ways to win with Centrus. Background Centrus Energy (LEU) represents the efforts of the American government’s uranium enrichment program that was spun off in 1999 for roughly 3B dollars. It was heavily reliant on government backing to support its facilities and after…
Donnelley Financial (DFIN) has seen declining revenues since its spinoff and investors have written it off as a dying print business. It is easy to overlook its incredible brand strength in certain business segments along with the successful transitioning of a growing share of its revenue to SaaS with this overhang. For a few key reasons discussed in this article, we believe their fundamentals are now poised to improve and there is 100% upside for investors from current levels. Background DFIN spun off from RR Donnelley in 2016. The company…
The market has punished Franklin Covey’s (NYSE:FC) stock price, sending it tumbling 50% YTD. Given its solvency and growing SAAS segment, FC has about 100% upside to its valuation today. Background Franklin Covey is a leader in the highly fragmented L&D (Leadership and Development) corporate training industry. It is best known for content such as The 7 Habits of Highly Effective People. On average, roughly $100 billion is spent on external providers such as FC per year. This is set to grow by 13% CAGR for the next four years.…
