Stock Sonar

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.

Kimball Electronics (NAS:KE) — mrkt cap $443mm; Price $17.89; EV/EBITDA 6

PASS. Kimball Electronics specializes in producing printed circuit boards (PCBs), primarily serving the automotive and medical industries. These PCBs, typically around 5” x 5” in size, control critical applications like automotive steering systems. Despite the need for extremely high precision—meeting the ‘five 9s’ standard for reliability—the market remains highly competitive and is largely controlled by end customers. Gross margins have consistently been below ten percent. To address this, KE is shifting its focus toward the medical sector and moving up the value chain, aiming to become more of a finished goods manufacturer. The current CEO has indicated that acquisitions are under consideration as part of the company’s growth strategy. While KE is operationally efficient, expanding into new sectors and pursuing acquisitions introduces considerable operational and balance sheet risks.

PowerFleet (NAS:AIOT) — mrkt cap $536mm; Price $4.98; EV/EBITDA 110

PASS. PowerFleet operates IoT devices in three areas: industrial (forklifts and material movement), logistics (trailer tracking and in-cab solutions), and fleet management (with clients like Avis). The company benefits from the growing digitization of supply chains but faces stiff competition from Samsara and Geotab. More than 60% of its revenue comes from Israel and South Africa, which presents risks. A bigger challenge is that OEMs are now offering built-in telematics with APIs, allowing customers to skip third-party providers like PowerFleet. These factors are likely obstacles to the company’s future growth.

Blade Air Mobility (NAS:BLDE) — mrkt cap $237mm; Price $3.05; EV/EBITDA NA

MORE RESEARCH NEEDED. Blade Air Mobility (BLDE) operates the largest marketplace for helicopter rides and provides transportation services for organ transplants across the nation. Unlike many other de-SPACs, BLDE maintains a strong balance sheet with nearly $150 million in cash, has quadrupled its revenue over the past three years, and is nearing GAAP profitability. BLDE’s business segments benefit from local economies of scale and significant fixed cost advantages in areas such as landing rights and labor. However, competition is intensifying, particularly in the organ transplant market. BLDE’s management also seems prudent in capital allocation and execution, focusing on core competencies and cash flow. Further analysis is needed to evaluate the long-term sustainability of their competitive advantages.

Akamai (NAS:AKAM) — mrkt cap $15.4B; Price $101.8; EV/EBITDA 13.8

MORE RESEARCH NEEDED. Akamai is the largest third-party CDN network globally, with over 350,000 servers in 4,000 locations. Pioneering CDN algorithms, Akamai revolutionized the internet experience (fun fact: the only company other than CSCO that has not surpassed its ’99 peak). However, the CDN space has evolved leaps and bounds with companies like Cloudflare offering more security and edge compute solutions. Traditional content delivery is now seen as a commodity, with many companies using multiple providers and easily switching to cheaper options. Akamai has responded to this by making significant acquisitions (~2billion worth in last 4 years), building a formidable presence in higher-margin security services. They also boast some of the best CPU-driven compute capabilities among CDNs. We believe the market could be underestimating Akamai’s increasingly diversified model and growth potential beyond traditional CDN services. We are excited to learn more.

Anterix (NAS:ATEX) — mrkt cap $708mm; Price $38.11; EV/EBITDA NA

PASS. Anterix owns the 900 MHz spectrum acquired from the FCC in 2020, targeting private networks for utilities covering vast land areas. The 900mhz powered private LAN would offer strong cybersecurity protections and more robust communications, crucial as the electrical grid becomes more vulnerable to outages and emergencies (most utilities currently rely on public wifi). Despite quarterly GAAP losses, Anterix remains roughly cash flow neutral due to large upfront payments from the five contracts they’ve signed with utilities. However, their recent $250 million buyback announcement raises concerns. Given the slow adoption rate and infrastructure needs of utilities, we believe they should maintain a cash cushion and focus on dividends, making the buyback poorly timed. We are passing.

MYR Group (NAS:MYRG) — mrkt cap $1.6B; Price $98.75; EV/EBITDA 12

MORE RESEARCH NEEDED. MYR Group Inc. is a holding company of subsidiaries responsible for delivering some of the largest electrical infrastructure and commercial projects across the U.S. and Canada. Over the last several years, the company has achieved double-digit revenue growth, driven by the expansion of U.S. transmission infrastructure, which has to increase by 60% by 2030 to support clean energy initiatives like solar and wind. Despite industry tailwinds driven by the IIJA and IRA acts, MYRG is down 30% year-to-date due to labor cost overruns and rising competition in utility solar projects. Further analysis is required to assess whether these challenges are temporary and if MYRG’s project selection strategy is optimal.

Cloudflare (NYSE:NET)— mrkt cap $26.8B; Price $78.5; EV/EBITDA NA

PASS. Cloudflare (NET) has been a pioneer in edge computing, built on the mission of making the internet safer and faster. Their CDN network, the first to bundle security services, now spans over 300 cities and handles around 25% of all internet traffic. That said, competitors like CloudFront, Akamai, and Fastly now offer similar capabilities. To stay ahead, Cloudflare has deployed inference-tuned GPUs in 167 cities, driving a 700% QoQ increase in inference requests. While they show significant promise in AI-powered edge computing, increasing competition and a high 18x P/S multiple lead us to pass on the stock for now.

TPI Composites (NAS:TPIC) — mrkt cap $213mm; Price $4.5; EV/EBITDA NA

MORE RESEARCH NEEDED. TPIC is the largest independent US based wind blade manufacturer and partners with OEMs such as GE, Vestas, and Nordex. Excluding China, TPIC has a 33% market share in the USA. 2024 is a pivotal moment for TPIC as it divested a non core segment, fixed quality issues related to their blades, and shuttered a manufacturing facility. Although management is taking the rights steps, TPIC is still operating at a loss. At the present rate, TPCI has about 2 more quarters of current cash burn left; however management is guiding to a profitable second half due to a pickup in demand and ~5% FCF yield in 2025 which would put TPIC at a low single digit multiple of earnings. Although the onshore wind outlook is favorable given decarbonization goals, TPIC execution is paramount given their history of losses. We will continue to monitor the company for operational developments and a potential inflection toward profitability.

Life Time Group (NYSE:LTH) — mrkt cap $5.0B; Price $24.5; EV/EBITDA 13

MORE RESEARCH NEEDED. Life Time is a luxury fitness and wellness brand. About 20% of its locations are based in Texas, with an overall churn rate of 30% and an average membership price of $300 per month. The brand is more family friendly than its main competitor, Equinox. LTH spends less on marketing compared to peers and is focused on increasing discretionary spending among its members. While the company carries considerable debt and is more vulnerable to economic downturns, it remains underpenetrated with only 210 locations.

Applied Digital (NAS:APLD) — mrkt cap $1.3B; Price $6.50; EV/EBITDA NA

STARTER POSITION INITIATED. Applied Digital is a company that has evolved significantly, transitioning from a bitcoin miner to an AI data center provider. Along the way, it has faced several short attacks, with critics questioning the validity of the company’s claims, accusing them of being inflated or even fraudulent. However, after conducting research and discussions with management, we believe the company’s newest data center buildout in Ellendale, North Dakota, is well-suited for AI workloads and will be in high demand. This is largely due to the significant power contracts they have secured and the strong fiber connections in place. AI data centers in the U.S. are currently limited, as the high-power loads required for these facilities make them scarce. Bringing additional power online will take utilities at least a couple of years, a considerable delay in an industry driven by the rapid pace of AI advancements. APLD has a letter of intent with a hyperscaler, and we expect a contract to be finalized by February 2025. Based on the value of their 400 MW buildout alone, we believe APLD has the potential to at least double from its current valuation.

Kits Eyecare (TSE:KITS) — mrkt cap $226mm; Price $7.3; EV/EBITDA 123

MORE RESEARCH NEEDED. KITS Eyecare operates in the underpenetrated online eyewear market, standing out with its vertically integrated model and in-house manufacturing. The space is more complex than it seems, requiring substantial capital for innovation. The company has seen rapid growth, with revenues increasing over 30% yoy, driven by custom eyewear and repeat customers. KITS’ competitors include Zenni and 1-800 Contacts, but they believe their custom, scalable approach gives them an edge. With capacity to handle up to $600 million in revenue before needing expansion, KITS is positioned well, but scaling this business at size remains challenging. More research is needed to assess their full potential.

SoundThinking (NAS:SSTI) — mrkt cap $164mm; Price $12.7; EV/EBITDA 27

PASS. The company, formerly known as ShotSpotter, built its reputation with acoustic technology that alerts police to gunfire locations in real-time. While effective and still underpenetrated in many areas, recent political controversy claims the technology leads to over-policing in predominantly Black neighborhoods. Roughly 50% of their territory growth comes from existing customers, but the large Chicago contract is at risk of non-renewal due to these tensions. The rebrand to SoundThinking in 2022 and the acquisition of new verticals suggest an effort to shift focus as gunshot detection now makes up only 65% of revenue. The uncertainty around whether this diversification strengthens or weakens their future prospects makes it a pass for now.

Arqit Quantum (NAS:ARQQ)  — mrkt cap $99mm; Price $7.3; EV/EBITDA NA

PASS. The company specializes in developing software for quantum-safe encryption. The “quantum threat” is real —consider a quantum computer potentially collapsing 30 years of computation into mere seconds. Encryption methods will require a complete overhaul to remain secure. While quantum encryption and infrastructure protection against this threat will eventually become critical, it’s not an immediate concern. ARQQ has secured some government contracts, but their cash burn remains high, and they will likely need to issue more shares to raise funds. Despite announcing customer renewals and potential contract wins in their latest earnings report, the amounts are not significant. We are staying away from this one for now.

Allient (NAS:ALNT) — mrkt cap $350mm; Price $20.67; EV/EBITDA 9.6

PASS. Allient manufactures motion, control, and power systems used across a range of industrial products in the medical, aerospace, and industrial sectors. Over the past decade, ALNT has doubled its sales, growing at a faster pace than the industry, primarily driven by mergers and acquisitions. However, revenues have recently started to decline, and operating margins have fallen to the low single digits due to a slowdown in industrial automation. In response, the company has initiated a “Simplify to Accelerate” strategy, focusing on more profitable segments—essentially restructuring after underperforming M&A activities. We generally maintain a cautious stance toward companies that rely heavily on M&A for growth, as it adds complexity to both operations and accounting. ALNT is no exception, particularly given the debt they have accumulated and the ongoing restructuring. M&A remains a priority for management, and it is likely they will continue facing sim

VirTra (NAS:VTSI)  — mrkt cap $67mm; Price $6.17; EV/EBITDA 8.4

PASS. VirTra provides photorealistic simulation technology to assist law enforcement in conflict resolution and decision-making. They sell high-end equipment to police departments, ranging from $250,000 to $500,000, and are praised for their realistic scenarios and extensive content library. However, the stock has declined due to a 20% YoY revenue drop, largely driven by a weak international segment. VirTra has also faced long delivery times and supply chain issues. The company plans to introduce VR headsets as a lower-cost alternative to their flagship 300-degree wraparound 2-D simulators, though it’s unclear how this will be complementary. With strong competition from Axon, we are choosing to pass for now.

Superior Industries (NYSE:SUP) — mrkt cap $97mm; Price $3.38; EV/EBITDA 10

PASS. SUP is one of the world’s largest suppliers of lightweight aluminum wheels, providing products to OEMs like Volvo and Ford. To diversify its customer base, they took on substantial debt to acquire Uniwheels. Recently, a critical refinancing was announced, extending maturity to 2028 but increasing annual interest expenses to ~$84mm. The company is guiding for ~$180mm in adj. EBITDA. Assuming D&A is roughly in line with maintenance capex, SUP will have ~$20-30M left to help pay down its ~$700mm in net debt, leaving little room for growth capex. The equity outlook heavily depends on operational results, and the market is signaling a bleak future. The industry appears to be increasingly competitive, with a challenging macro environment and rising Chinese competition. Given these factors, we find it difficult to be optimistic about future volumes. We have decided to pass.

Oil Dri (NYSE:ODC) — mrkt cap $480mm; Price $65.98; EV/EBITDA 9

PASS. Oil-Dri Corporation (ODC) manufactures and sells a diverse range of sorbent materials, including cat litter, where it stands as one of the largest producers in the U.S. Recently, ODC experienced its most profitable year in its 84-year history, generating nearly $40mm in free cash flow, largely driven by price increases across its litter products. Moving forward, ODC’s strategy is to capitalize on the litter category by expanding both its branded offerings, through acquisitions, and its private label products. Historically, this market has been challenging with low margins due to competition from Asia, and we believe that ODC to be over earnings relative to the underlying business. We have decided to pass.

Upwork (NAS:UPWK) — mrkt cap $1.2B; Price $9.4; EV/EBITDA 18.5

MORE RESEARCH NEEDED. We have been interested in marketplace businesses that appear to be in danger of obsolescence due to AI. Upwork is down ~80% from its highs and is a marketplace that connects ~900k active buyers (small businesses and larger enterprises) to millions of freelancers. Customers post a job and, in minutes, can review dozens of proposals. Upwork is seen as vulnerable to AI, but the majority of Upwork’s jobs have significant complexity and are longer-term in nature. This is why active customers spend on average ~$4,000 annually, compared to Fiverr, which is closer to $200. We think the market may be discounting Upwork’s potential. We will continue to dig more.

Cutera Inc (NAS:CUTR) — mrkt cap $17.6mm; Price $.88; EV/EBITDA NA

PASS. This is a heavily indebted company that has seen its stock price crater as a result of mismanagement, operational issues, and challenging macro conditions. The company sells aesthetic products, with its primary product, AviClear, being the first FDA-approved laser treatment for acne. There are more robust acne treatments available, such as Accutane, which, though effective, is an oral medication with potential side effects. In short, the company has promising technologies that could see recovery as rates lower—encouraging capital equipment sales– and the business stabilizes (big ifs). There are good reasons why bondholders might prefer the company to remain a going concern rather than liquidate—recovery rates in a liquidation scenario are dubious, and if the business gains momentum, bondholders may benefit more from holding some equity. A debt exchange with the ‘26 convertible bondholders makes sense–it is reasonably likely that the company will undergo a reorganization (which will likely be highly dilutive to the equity) to preserve its going concern status rather than face liquidation, which should benefit the ‘26 converts. This debt is currently trading at 30 cents on the dollar, and we will continue to evaluate.

Fiverr (NYSE:FVRR) — mrkt cap $917mm; Price $25.99; P/E 83

PASS. We have been researching online talent marketplaces heavily given recent sell-offs in the sector. Fiverr is down over 90% from its highs and is known as a platform for hiring freelancers for lower-value gigs (hence the name). In response to AI-driven disintermediation—why hire someone for a logo when AI can generate one for free—the company is trying to move upstream into higher-value jobs. While Fiverr has had some success with Fiverr Pro and Fiverr Enterprise, it’s difficult to determine whether they will emerge as an AI winner or loser. The company is committed to generating free cash flow; however, active user growth is negative yoy. We do not believe AI will disintermediate higher-value jobs, and if Fiverr succeeds in penetrating this market, talent will adapt and find ways to offer skills in an AI-driven world. We will keep it on the watchlist and pass for now.

BK Technologies (NYSE:BKTI) — mrkt cap $71mm; Price $20.03; EV/EBITDA 12

PASS. BKTI, a provider of specialized radios for wildfire departments nationwide, has been transitioning from in-house manufacturing to outsourcing production to suppliers in Mexico. This shift has significantly improved gross margins, which have nearly doubled to 35% over the past four years. With costs now under control, BKTI is expanding its reach to other sectors, including Emergency Response and Law Enforcement. Although Motorola has long dominated these markets, BKTI’s lower-priced radios could gain traction in smaller counties where budget pressures are more acute. The stock has risen 60% in the past week following strong earnings and guidance. Given the recent run-up and the potential political budget risks tied to the upcoming election, we are holding off for a better entry point.

Alico Inc (NAS:ALCO) — mrkt cap $209mm; Price $27.30; EV/EBITDA NA

PASS. Alico, Florida’s largest orange producer, owns ~50,000 acres of valuable land with attractive contracts locked in with Tropicana. The company has monetized land sales and used the proceeds to pay down substantial debt—something we always like to see. However, the stock price hasn’t responded as expected, largely due to disappointing production levels caused by citrus greening, a bacterial disease devastating citrus producers. The company has also faced challenges from inclement weather and hurricanes. There’s hope that the 2.5 million trees planted in 2017 will soon produce quality fruit, and that trunk-injected bacterial treatment (Oxytetracycline) will have a positive impact. That said, it’s difficult to assess the trees’ condition—if we could gain confidence that they’re largely okay, this would be a classic value play. (If anyone has insight, please reach out.)

IPG Photonics (NAS:IPGP) — mrkt cap $2.9B; Price $67.30; EV/EBITDA 11

MORE RESEARCH NEEDED. IPGP is the global leader in fiber lasers, which are primarily used for cutting and welding metals, with significant applications in the automotive industry. While the fiber laser industry has expanded largely due to the growth of electric vehicles, IPGP’s revenue has stagnated in recent years as low-cost Chinese competitors have gained market share, particularly in Asia, where customers prioritize cost over service. A new CEO has recently taken over, with a focus on driving organic growth and generating free cash flow. We are awaiting further clarity on the strategy to achieve these goals.

Consensus Cloud (NAS:CCSI) — mrkt cap $380mm; Price $19.64; EV/EBITDA 6

PASS. CCSI specializes in providing cloud-based fax technology for the healthcare industry, enabling digital transmission of documents over phone lines. The company benefits from healthcare providers transitioning from on-premise fax hardware to digital solutions. Fax remains prevalent due to the lack of interoperability among different electronic health record systems used by hospitals. Unlike email, fax is HIPAA-compliant, ensuring secure communication. However, emerging standards may soon enable hospitals to share information securely and freely. Given the likelihood of flat to declining revenues and a $600 million debt load, CCSI is too expensive.

Fossil Group (NAS:FOSL) — mrkt cap $57mm; Price $1.08; EV/EBITDA NA

PASS. We were quite close to initiating a speculative position on this one. Fossil Group designs and sells watches, jewelry, and fashion accessories worldwide. The company has undertaken a large operational overhaul to stem losses, finally discontinuing their smartwatch segment, closing non-performing stores, and taking out costs from supply chain optimization. Although their stock price has cratered, the company has ample liquidity ($100mm+) and there are signs that restructuring efforts are improving, with gross margin increasing 300 bps and opex declining 20% YoY. Their operating loss narrowed from $19mm to $6 million. Usually, cost-cutting this severe is associated with steep declines in revenue, but there are signs that ~50% of their revenue base—proprietary brands—is stabilizing. Ultimately, what gives us pause is the rest of the business—licensed fashion brands like Armani, Kors, etc.—which appears to be in free fall. We fear it may have something to do with potential non-renewals, as most came/come due late last year or this year. Because of this uncertainty, we are passing. We even evaluated some of the debt before passing ($FOSLL—it is common for “baby bonds” to trade on exchanges. YTW is ~40%, so clearly the bond market is not optimistic about a refi or recovery).

Natural Gas Service Group (NYSE:NGS) — mrkt cap $240mm; Price $19.19; EV/EBITDA 9

PASS. NGS sells and leases natural gas compressors to oil producers primarily in the Permian Basin. Compressors are used to inject high pressure natural gas into wells to boost production. Rental contracts last anywhere from six to sixty months with high renewal rates. NGS is levered more towards production cycle of a well as opposed to the exploration which gives it more stability against volatile commodity prices.  Although the unit economics are favorable, its balance sheet has significant debt with little cash buffer and it’s likely a capital raise will occur soon through issuing debt/equity. A new CEO with turnaround/private equity experience has recently been bought to streamline operations and free up working capital. We will wait to see evidence of operational efficiency before initiating a position.

FTC Solar (NAS:FTCI) — mrkt cap $47mm; Price $.38; EV/EBITDA NA

PASS. FTCI manufactures servo motors for solar panels to track the sun, this way solar panels can receive the maximum energy input throughout the day. Their solutions cater towards utility rather than residential.  FTCI suffers from anemic gross margins, burning cash to the tun of 50mm per year,  and has declined about 95% since its IPO in 2021. With about two quarters of cash burn left, the future does not look great. However things might turn around. The CEO and COO have been replaced, Chinese solar tariffs have been implemented, and with energy demand increasing, utility solar is seeing significant demand. FTCI has seen backlogs increase significantly yoy, and if they can drive gross margins up, they could see significant price appreciation.