Stock Sonar

BGSF Inc (NYSE:BGSF) — mrkt cap $60mm; Price $5.48; EV/EBITDA 9

SPECULATIVE POSITION INITIATED. The staffing industry is painfully experiencing a labor market environment described as “The Great Stay,” with quit rates at their lowest since 2015. BGSF derives revenue from Property Management staffing (42%) and Professional Services (58%), including Finance, IT, and Accounting. Their recent acquisition of Momentum Solutionz expands their offerings into IT consulting and project management for SMBs. The company’s stock is currently trading below COVID lows (less than ~5x normalized FCF), is well-managed by insiders who have been buying stock, and has seen sequential qoq improvements in verticals. Post-Trump business confidence has also increased significantly, which could set the stage for increased business activity. Although recession risks prevent us from sizing up, we think the risk-reward skew is highly favorable with 100%+ potential upside.

Montrose Environmental (NYSE:MEG)  — mrkt cap $590mm; Price $16.47; EV/EBITDA NA

MORE RESEARCH NEEDED. MEG is an environmental services company that has pursued a rollup strategy over the past several years. The company is focused on emissions and lab testing — industries that are recession-resistant and politically agnostic. However, their acquisition strategy has lacked coherence, and the company is currently unprofitable with approximately $350 million in debt and preferred equity. Management is now shifting its strategy to halt acquisitions, focus on integration, and reduce debt. Further analysis is needed to evaluate their capital allocation capabilities, the company’s true organic growth, and potential synergies, such as cross-selling opportunities across their portfolio.

MP Materials (NYSE:MP)  — mrkt cap $3.2B; Price $19.54; EV/EBITDA NA

PASS. MP owns and operates the only rare earth mine and processing facility in the United States. Currently, China dominates the global rare earths industry, producing over 60% of these elements. Rare earth minerals are primarily used in EVs, drones, and wind turbines. With rising geopolitical tensions and increasing export restrictions, such as China’s recent bans on gallium, germanium, and antimony exports to the U.S., further restrictions are likely. MP is positioned to benefit from having a secure U.S.-based supply. However, the company remains unprofitable and trades at over 10x revenue, reflecting lofty expectations that we cannot underwrite. We will wait for a pullback before considering a position.

M-Tron Industries (NYSE:MPTI)  — mrkt cap $200mm; Price $69.8; EV/EBITDA 26

SPECULATIVE POSITION INITIATED. MPTI is a U.S.-based, vertically integrated engineering and manufacturing firm specializing in filters, oscillators, and resonators—small electronic components essential for enabling precise communication and navigation in satellite, defense, telecom, and radar systems. The overall defense related electronic components market is poised for significant growth though the company is trading at the higher end of fair value (4x P/S). However, further upside potential is significant due to MPTI’s positioning as a “drone stock,” providing critical components to drone and drone-related systems. Fundamentals and sentiment are likely to improve beyond management’s expectations, though the current pricing limits our position sizing. Special thanks to subscriber Brent F. for bringing this opportunity to our attention.

Ferragamo (MI:SFER) — mrkt cap €1.01B; Price €6.12; EV/EBITDA 7.1

PASS. Ferragamo is a leading luxury brand globally, renowned for its leather goods and shoes, which constitute the majority of its revenue. The brand has faced challenges, with revenues peaking in 2016 and declining since. While it maintains strong appeal among older generations, it has struggled to connect with younger audiences. Current CEO Marco Gobbetti, formerly of Burberry, has been in his role for two years. What was initially expected to be a swift turnaround is evolving into a longer-term effort. Significant time and strategic marketing will be required to regain relevance with younger consumers. For now, we prefer to remain on the sidelines.

Freightos (NAS:CRGO) — mrkt cap $89mm; Price $1.81; EV/EBITDA NA

MORE RESEARCH NEEDED. Freightos is a freight booking and payment platform connecting importers and exporters globally. It competes with FlexPort and traditional freight forwarders that directly manage cargo shipments for customers. The global freight industry remains antiquated, undergoing early stages of digital transformation. CRGO has achieved double-digit growth in both carriers and buyers over the past several years. However, questions remain regarding its long-term unit economics. Further research is needed to understand the firm’s strategy and competitive positioning against FlexPort. Thanks to subscriber Herbert Z. for bringing this company to our attention.

Paysafe (NAS:PSFE) — mrkt cap $1.1B; Price $18.77; EV/EBITDA 7.9

STARTER POSITION INITIATED. Paysafe’s revenue is ~evenly divided between B2B payment processing and B2C digital wallets. Within the B2B segment, around 30-35% is attributed to online gambling and overall revenue is > 50% U.S. attribution—a rapidly expanding sector. The U.S. online gambling market is projected to double by 2029, fueled by increasing legalization, states seeking additional revenue, and technological advancements like in-game betting. (25 states have legalized some form of online gambling in the past five years, bringing the total to 30). Paysafe’s multi-decade experience in processing payments for online gaming has established a significant advantage in managing high-risk areas (KYC, AML, and compliance). We think the company is undervalued after ~30% recent post-earnings sell-off attributed to a slight EPS miss due to investments made in expanding sales personnel.

Palladyne AI (NAS:PDYN) — mrkt cap $226mm; Price $7.21; EV/EBITDA NA

PASS. Palladyne has surged nearly 300% in the past two weeks following excitement over its partnership with Red Cat, a drone manufacturer set to integrate Palladyne’s AI algorithms into its drones. Red Cat recently secured an order from the U.S. Army for approximately 6,000 drones and has also experienced notable price appreciation. At ~35x revenue, PDYN carries significant growth expectations, which we find challenging to underwrite. Historically focused on hardware, PDYN has only recently pivoted to software. Given its subscale nature, we would need to see substantially stronger execution in AI offerings before considering a position.

Taylor Devices (NAS:TAYD) — mrkt cap $143mm; Price $45.86; EV/EBITDA 10.4

MORE RESEARCH NEEDED. Taylor Devices designs and manufactures advanced shock absorption systems, with 59% of its revenue now coming from aerospace and defense (A&D) —a rapidly growing sector. Recent quarterly sales increased 17% yoy, with A&D revenue up 20% (construction declined slightly). Management has optimized operations, reducing cash conversion. Backlog remains strong at $28.4M, with 62% linked to multi-year A&D projects. The company’s legacy in high-margin A&D, coupled with operational improvements and a robust balance sheet ($25mm+ in cash, no debt), could position it for sustained growth. More work needs to be done on how the company will scale and trying to gain insight into the company – management is less communicative than most.

nLight (NAS:LASR) — mrkt cap $523mm; Price $10.87; EV/EBITDA NA

PASS. We reviewed nLight (LASR) last week and decided to pass for now. The commercial segment faces significant challenges, and it’s unclear where the bottom might be. While the defense segment is growing rapidly, the way contracts are booked could result in volatile revenue. Additionally, the global defense market for their technology is only around $1.5 billion, and while expanding, it may not be sufficient in the next 12-24 months to offset nLight’s sizable fixed costs. The loss of substantial commercial business could push nLight toward restructuring to achieve profitability. The company is promising, developing in-demand technology, but the current valuation is not yet attractive. Q4 earnings will be a key moment, as we monitor how the market reacts to potential further commercial weakness or defense revenue delays tied to development. Thanks to subscriber Brian M. for bringing this name to our attention.

Clearwater Paper (NYSE:CLW) — mrkt cap $415mm; Price $24.96; EV/EBITDA 10

PASS. Clearwater Paper is a leading supplier of paperboard packaging for the CPG and food industries. The company recently divested its Tissue Paper segment for $1 billion, using the proceeds to reduce debt and repurchase shares, bringing net debt down to ~$200 million. While Clearwater is among the top five paperboard packaging producers in the U.S., the industry faces structural challenges similar to those of the tissue paper segment- overcapacity among scaled producers who can pivot their facilities to manufacture whichever paper-based commodity benefits from favorable cyclical margins. We are passing.

Zeta Global (NAS:ZETA) — mrkt cap $5.2B; Price $22.02; EV/EBITDA NA

PASS. Zeta is a provider of data enrichment and email marketing services, leveraging its data on hundreds of millions of customers to serve clients, primarily in the e-commerce space. Last week, a short report caused the stock to drop 51%. While short reports can drive sharp selloffs, they’re not always based on solid evidence. After reviewing the report, it’s evident that Zeta has acquired companies with questionable data procurement practices, raising potential regulatory risks. However, according to Zeta’s response, these issues affect LSD portion of their revenue. Despite the sharp decline, Zeta’s valuation still remains high, with a P/S ratio near 5x. If anything, the short report has brought Zeta’s valuation closer to a more reasonable level but not enough to be interesting.

Varex Imaging (NAS:VREX) — mrkt cap $585mm; Price $14.31; EV/EBITDA 14

PASS. Varex is a leading manufacturer of X-ray imaging components for the medical industry, producing essential parts such as X-ray tubes and detectors. They partner with OEMs like Canon and GE, and have stable, long-term relationships that have consistently yielded gross margins above 30%. Much of their manufacturing takes place in China, subjecting them to US tariffs, and they have begun shifting operations to Germany and the Philippines. Additionally, about 25% of their revenue comes from China, posing more risks due to geopolitical tensions. We anticipate further challenges and expect better buying opportunities in the future.

10X Genomics (NAS:TXG) — mrkt cap $1.9B; Price $15.68; EV/EBITDA NA

PASS. 10x Genomics remains the clear leader in the single-cell analysis market with its Chromium platform, holding a 75-80% market share. Its droplet-based cell partitioning technology provides high throughput and cost-effective solutions, making it the top choice for researchers. However, the company’s reliance on its single product Chromium is a concern, especially as the product may have reached significant market penetration in key research labs. With slower growth expected in the single-cell space, TXG’s long-term growth prospects are lessened. P/S 4x & burning cash

nLight (NAS:LASR) — mrkt cap $580mm; Price $11.12; EV/EBITDA NA

MORE RESEARCH NEEDED: nLIGHT, Inc. is a leading U.S. provider of high-powered lasers, specializing in industrial applications, microfabrication (precision manufacturing at tiny scales), and, increasingly, defense—which now makes up > 50% of its revenue. As defense industries adopt laser technologies for their cost-effectiveness against emerging threats like drones (much easier and cheaper to zap a drone than waste expensive missiles), nLIGHT stands to benefit. Israel made a big splash in the space after recently announced a $500 million “Iron Beam” laser defense program. nLIGHT’s vertical integration and advanced capabilities provide a competitive edge in defense, where it has secured multiple contracts to develop high-energy systems for U.S. military programs. Although the defense segment may be interesting, the industrial segment (~20% of revenue) faces intense competition from lower-cost Chinese producers. More work is needed to fully understand the dynamics of its other segments and the scaling challenges on the defense side.

Butterfly Networks (NAS:BFLY) — mrkt cap $520mm; Price $2.45; EV/EBITDA NA

MORE RESEARCH NEEDED. Butterfly Network is a healthcare technology company focused on developing and commercializing innovative ultrasound imaging solutions. These hardware and software products are designed to make high-quality medical imaging more accessible and user-friendly. With an annual R&D investment of approximately $40 million, Butterfly emphasizes semiconductor advancements within its devices and employs a unique go-to-market approach targeting universities, entry-level users, and non-traditional sectors like agriculture. Currently, 60% of medical schools incorporate Butterfly devices into their curriculum. Following recent restructuring efforts and revenue growth of 30% yoy the company is close to reaching profitability. While their products have received positive feedback, further analysis is needed to assess future unit economics and competitive dynamics.

Glaukos (NAS:GKOS) — mrkt cap $7.0B; Price $127.5; EV/EBITDA NA

PASS. Leader in MIGS (Micro invasive glaucoma surgery) with an attractive patent portfolio (iStent/iDose). Has steadily grown revenues, driven by iStent technology targeting glaucoma, making it a play on the aging population. However, they continue to burn around $150 million annually despite strong growth. The stock experienced a 65% run-up this year, but concerns remain regarding the long-term growth of the MIGS market. As a reimbursement-driven field, MIGS faces challenges such as modest efficacy, limited standalone use (often done in conjunction with cataract surgery), and hurdles in surgeon adoption, which may cap future expansion. Current P/S is too rich at 19x.

Marcus Corp (NYSE:MCS) — mrkt cap $676mm; Price $21.5; EV/EBITDA 11.2

PASS. The Marcus Corporation operates movie theaters and hotels, primarily in smaller urban areas. Its two main segments are Marcus Theatres, with nearly 1,000 screens, and Marcus Hotels & Resorts, which includes owned and managed hotel properties. Theaters’ dependence on strong blockbusters hasn’t fully recovered, and the domestic box office remains ~26% below 2019 levels, with fewer wide-release films returning post-pandemic. If filmmakers were structurally recommitting to theatrical releases we could gain conviction that attendance levels will hold steady. However, distribution options have increased and the industry is likely to be in flux for quite some time. We are passing.

Exscientia (NAS:EXAI) — mrkt cap $676mm; Price $5.11; EV/EBITDA NA

PASS. Exscientia operates in the UK, primarily as a service provider partnering with pharmaceutical companies like Bristol Myers Squibb and Sanofi to develop drugs using AI. They streamline the design and testing of compounds, speeding up drug discovery. While they’ve made commercial progress, they face significant cash burn—$100-200 million annually—and hold about $400 million in cash. A mixed shelf offering is prepared, signaling the likelihood of future issuance. Though dilution hasn’t occurred yet, liquidity concerns are likely in the near future and valuations are high at a P/S of 25x.

Consolidated Water (NAS:CWCO) — mrkt cap $385mm; Price $24.30; EV/EBITDA 7

MORE RESEARCH NEEDED. CWCO is a developer and operator of desalination and potable reuse plants. Historically, their revenue has primarily come from operations in Grand Cayman and neighboring islands, where fresh water resources and aqueduct infrastructure are limited. Recently, however, CWCO has begun shifting focus to the U.S. mainland as water scarcity emerges as an increasingly pressing political issue. While we view CWCO as one of the strongest operators in this space, its future potential remains heavily dependent on regulatory processes, adding complexity to forecasting. We will revisit the company as support for desalination and potable reuse infrastructure becomes more substantial

Laser Photonics (NAS:LASE) — mrkt cap $80mm; Price $5.27; EV/EBITDA NA

PASS. LASE manufactures fiber optic lasers for precision etching and cutting applications, competing in the same market as IPGP, a company we have previously analyzed. LASE’s stock has risen nearly 400% this year, driven by expanding defense-related opportunities, particularly in the anti-drone defense sector. Lasers effectively ‘blind’ drone sensors, rendering them inoperative. However, LASE has yet to demonstrate a product advantage over competitors, and its R&D limitations may be difficult to overcome. Moreover, lasers have yet to establish themselves as the leading anti-drone solution, with alternative technologies emerging. Given LASE’s current lack of profitability, we are opting to pass on this name.

Etsy (NAS:ETSY) — mrkt cap $5.6B; Price $49.33; EV/EBITDA 17

MORE RESEARCH NEEDED. Etsy is the largest marketplace for handmade and custom goods. Its share price has retraced to 2019 levels due to a decline in discretionary spending. However, key platform indicators such as gross merchandise sales and the number of buyers and sellers have continued to rise. Etsy’s active buyers and sellers now stand at approximately 96 million and 9 million, respectively. The company has initiated new growth strategies, such as ‘Gift Mode,’ which aims to reduce search costs for gifts. Given that gifting is a high-stakes occasion, optimizing gift discovery could become a significant growth driver. Large Language Models help reduce search costs and could greatly benefit platforms with a highly heterogeneous mix of goods and services such as Etsy. We will monitor the execution of its AI implementation closely.

Unisys (NYSE:UIS) — mrkt cap $433mm; Price $6.25; EV/EBITDA NA

PASS. Unisys is a global IT company offering end-device management, cloud and infrastructure services, security solutions, and software for businesses and governments. Its share price has remained flat over the past decade, as revenue growth has stagnated. Recently, Unisys has refocused on its core operations, divesting non-core segments and using cash generated from its enterprise computing segment to expand its digital and cloud solutions divisions. While the company has made commendable progress in cost management and is nearing GAAP profitability, it has yet to demonstrate consistent execution and growth.

Zoom (NAS:ZM) — mrkt cap $22B; Price $72.12; EV/EBITDA 16.8

PASS. Churn rates for Zoom’s core business have been impressively stable, especially considering the fierce competition from Teams and Google Meet. The platform’s nuanced functionalities and customer habits  have engendered a degree of  stickiness. However, it’s tough to move forward without more clarity on their growth. Zoom is attempting transitioning from a one product company (video conferencing) to a comprehensive worker platform, driven by AI. They’ve had traction with products like Zoom Phone and Contact Center, and enterprise customers using multiple products now account for 66% of their annual recurring revenue. But to fully succeed on this transition, they will need to execute high risk growth strategies to succeed and will be increasingly acquisitive. Passing for now.

Enterprise Group (TSX:E) — mrkt cap $140mm; Price $2.41; EV/EBITDA 10

STARTER POSITION INITIATED. We typically avoid companies with significant commodity exposure; however, we are making an exception with Enterprise Group. E.TO/ETOLF (dual listing) is a profitable oilfield services company based in Canada that has recently signed an exclusive agreement with FlexEnergy to be a provider of their modular natural gas turbines. These turbines, deployed at well sites, generate energy for operators with nearly zero emissions, offering a cleaner alternative to the widely-used diesel generators, which are substantially more expensive and emit substantial pollutants. Enterprise Group has strong growth potential, with opportunities to expand into sectors such as mining and edge data centers. The turbines have a payback period of approximately 16 months and Enterprise Group has already deployed about thirty of them at well sites. It is not unreasonable that within five years, E.TO could potentially generate profits of ~$50 million annually. Additionally, the Canadian natural gas market is poised for growth as the country expands its export capabilities through new LNG facilities, several of which are expected to be completed in 2025.

Bit Digital (NAS: BTBT) — mrkt cap $526mm; Price $3.56; EV/EBITDA 56

PASS. After taking a position in Applied Digital, we have been evaluating other crypto miners with significant power capacity and fiber connectivity. AI data centers in the U.S. are constrained by the high power loads required, making these facilities scarce and greatly increasing the value of miners who possess them. Bit Digital came onto our radar, possessing data centers and touting their AI customers. However, these customers are only in their Iceland data centers and consist of smaller companies rather than the hyperscalers that drive the majority of demand. Additionally, BTBT has shifted toward acquiring HPC Tier 3 data centers rather than expanding their existing facilities, as companies like CORZ and APLD have done. We do not believe BTBT holds assets of the same caliber.

Airship AI (NAS:AISP) — mrkt cap $56mm; Price $2.12; EV/EBITDA NA

PASS. Airship AI offers a suite of video management and data processing tools designed primarily for public safety, law enforcement, and security sectors. They claim to be an AI company but beyond object detection and facial recognition – which are common features in the video analytics space—they do not appear to be doing anything differentiated. They have had some impressive contract wins for such a young company (founded in 2020), but it isn’t enough for us to take a second look. (PSA: we are very interested in evaluating good small cap names in the defense sector. If any readers know of some interesting companies, pls give us a shout.)

e-Gain (NAS:EGAN) — mrkt cap $140mm; Price $4.81; EV/EBITDA 5

PASS. We have been evaluating AI opportunities within the customer service and sales sectors, where companies are increasingly seeking automation. eGain emerged as a potential investment, offering analytics, quality assurance, and customer engagement tools to contact centers. While the company is pivoting towards AI with recent GPT-based solutions, the contact center model is facing obsolescence. Without proprietary data to differentiate its offerings, eGain risks becoming obsolete as well. The company has experienced revenue declines, and major clients have started to churn.

Shoals Technologies (NAS:SHLS) — mrkt cap $819mm; Price $4.42; EV/EBITDA 16

PASS. Utility-scale solar generation in the U.S. has been growing rapidly and is poised to continue gaining market share from traditional sources like natural gas. Solar accounts for 60% of the new power capacity additions to the grid in 2024. SHLS appeared to be a promising investment, known for their high-quality electrical balance of system solutions that manage power flow between solar panels and the grid. However, the company has faced significant challenges largely due to forced errors: customer dissatisfaction due to significant price hikes, loss of key engineering talent, and increasing competition from low-cost international players. Although SHLS is pursuing litigation against some competitors, the outlook remains negative, as evidenced by the divergence between utility-scale solar growth and SHLS’s revenue.

Rezolve AI (NAS:RZLV) — mrkt cap $1.1B; Price $6.91; EV/EBITDA NA

PASS. The company provides e-commerce-specific LLM technology that can be delivered to retailers through APIs. Rezolve has been on our radar since announcing a partnership with Microsoft last week. While we have been anticipating a company to commercialize LLMs for specific industry verticals, Rezolve has little cash on hand and almost no current revenue. Although they expect revenue in Q4 2024 from signed partner agreements with some reputable companies, we remain surprised that Microsoft would announce a strategic partnership with them.