Stock Sonar

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.

Shimmick Inc (NAS:SHIM) — mrkt cap $120mm; Price $3.09; EV/EBITDA NA

PASS. SHIM is a leading provider of water infrastructure solutions, having built some of the largest wastewater recycling systems. It is consistently ranked among the top ten water solutions providers in the USA and generates more than $600 million in revenue per year. Given these facts, it was surprising to find that SHIM consistently loses money and is a microcap. In an industry where companies typically generate close to double-digit gross margins on new projects, SHIM generates about half of that and is trending lower. Although SHIM can execute projects, it lacks the financial discipline to generate a profit. With the recent resignation of the CFO, it will likely continue to flounder. We will be watching to see what measures the new CFO can implement in the company.

Rackspace Technology (NAS:RXT) — mrkt cap $525mm; Price $2.35; EV/EBITDA 12.5

MORE RESEARCH NEEDED. Rackspace IPO’d in 2020 after being part of an Apollo LBO. The company is an expert in cloud services and has recently shifted towards providing expertise for companies looking to accelerate AI deployment. Most mid-sized firms will need extensive development help to achieve their AI ambitions, and RXT is well positioned to meet this demand. Although RXT has an EV/EBITDA of 12.5, it is heavily leveraged with over $2 billion of variable rate debt. Despite this, RXT has redirected resources to become a key player in implementing AI solutions for clients. Being closely tied to the cloud, they are well suited to provide these solutions and have already had a few successful iterations.

Clear Channel Outdoor (NAS:CCO) — mrkt cap $823mm; Price $1.68; EV/EBITDA 9.4

PASS. As we anticipate a softening of rates, we have focused on screening good names with high debt loads. Clear Channel Outdoor (CCO) is an outdoor advertising provider with significant debt. CCO’s growth has primarily come from converting static displays to digital formats, which has shown healthy ROI. Management has prioritized disposing of its low-margin European segment to focus on the U.S. market. The proceeds from this sale are intended to pay down debt, thereby deleveraging the company and freeing up capital for growth CAPEX—a potential win for shareholders. However, the regulatory environment in Europe is stringent, making it uncertain when a buyer for the European assets will be found. Additionally, the penetration of their outdoor market and the feasibility of digitizing B and C properties are unclear. Each change requires sign-off from the municipality, which may not be automatic. This investment falls into the “too hard” bucket for us.

Big Five Sporting Goods (NAS:BGFV) — mrkt cap $60mm; Price $2.75; EV/EBITDA 3.4

PASS. Big Five Sporting Goods operates a chain of sporting goods stores on the west coast. We initially came across the name while analyzing Russell 2000 deletions. This retailer has seen its stock price crater due to continuing soft sales in key categories like hard goods. Everyone got excited about the outdoors during COVID, but it looks like a lot of that spending has dried up. BGFV’s high operating leverage has cut the other way, and negative comps have driven the stock down 94% since the ’21 highs. The saving grace for the company could be the lack of debt, but it is difficult to gauge how deep the valley is in front of Big Five. It doesn’t appear that they have any advantages beyond their store footprint and waning mind share among west coast shoppers. This name could be interesting for speculators but not for us.

Table Trac (OTC:TBTC) — mrkt cap $19mm; Price $4.19; EV/EBITDA 9.9

MORE RESEARCH NEEDED. This is a tiny company that was pitched to us by an interesting fund manager we had a call with. The company provides Casino Management System software and ongoing tech support for Brick & Mortar Casinos. They appear to have tangible competitive advantages in terms of state regulatory licenses, relationships, and IP. Additionally, their product is priced 20-30% cheaper than larger competitors. More work needs to be done on TAM and an understanding of the software architecture of casinos.

Wag Group (NAS:PET) — mrkt cap $65mm; Price $1.34; EV/EBITDA NA

PASS. WAG is the second largest dog walking platform in the US. It boasts 670k users and generates about $100mm in sales. WAG is down almost 90% from its de-SPAC in 2022. Its largest competitor, Rover, showed a similar decline before it was acquired by Blackstone for about an 8x revenue multiple. Although WAG is growing revenues, they are still unprofitable- they have about a year of runway left. For WAG, the issue is not one of efficiency, but one of scale. Currently their largest expense is marketing, they need to grow revenues by about 30% to reach profitability. We will be keeping a close eye on any change in strategy or potential acquirers.

Enfusion (NYSE:ENFN) — mrkt cap $1.2B; Price $9.37; EV/EBITDA 64

MORE RESEARCH NEEDED. Another company from the class of ’21. Stock price has been halved since IPO price (which, relatively speaking, is quite good for this cohort). The company was started by software developers who worked for hedge funds and recognized the widespread need for better front/mid/back-office solutions. They provide full integration with order management solutions. Enfusion appears to be the leader for smaller funds needing comprehensive solutions, and the runway still looks quite long here. They are aiming to eventually compete for larger asset managers, but this seems unlikely at the moment. We have more work to do to fully understand their product offering but upon initial research they appear well situated to continue gaining share with smaller fund managers.

Orthofix Medical (NAS:OFIX) — mrkt cap $605mm; Price $16.14; EV/EBITDA NA

PASS. OFIX is a global spine and orthopedics company. We looked at OFIX as it recently underwent a full-blown C suite change due to management violating multiple code of conducts. The new management team that has been bought in has extensive experience with leading companies to a successful exit (sale to another company). OFIX has an impressive portfolio of products however it has a bloated cost structure and a merger that it has to digest, courtesy of the previous management team. It has almost $1B in sales yet is still unprofitable- typically, past the $200mm mark is when medical device companies reach scale and profitability. We will wait to see further crystallization of strategy and cost cutting before considering a position.

Latham Group (NAS:SWIM) — mrkt cap $388mm; Price $3.36; EV/EBITDA 10

MORE RESEARCH NEEDED. SWIM is the largest manufacturer of fiberglass pools, holding close to 50% market share. Although their fiberglass pool sales are down year-over-year, this category is gaining share in the traditional pool market due to lower installation and maintenance costs. They have relationships with dealers all over the country, but we need to better understand the incentives for these dealers. The housing-related sector has seen a slump in demand, and this category is no exception. However, if trends continue, this could be an interesting long-term hold. More work needs to be done on SWIM’s logistical network and competitive advantages, particularly in understanding how the market share mix for fiberglass pool manufacturing will evolve in the future.

American Software (NAS:AMSWA) — mrkt cap $300mm; Price $9.05; EV/EBITDA 21

PASS. American Software provides supply chain solutions primarily for CPG customers. Over the past few years, the company has undertaken significant cost-cutting measures, divested non-core businesses, and improved its governance structure by eliminating controlling B shares. It has also rebranded with an AI-focused approach to enhance customer query handling. Customer relationships are sticky, which offers stable revenue streams but poses challenges for growth. Revenues have stagnated over the last five years, and without growth, AMWA is worth significantly less than its current trading prices. Although it could be a buyout candidate, our investment decisions do not hinge on potential acquisitions. As the company focuses on its core segment, we will closely monitor its go-to-market strategy.

Eventbrite (NYSE: EB) — mrkt cap $437mm; Price $4.5; EV/EBITDA NA

PASS. Eventbrite is an online platform connecting creators and event-goers for live experiences. We originally researched the name on 2/7 and assigned it a MORE RESEARCH NEEDED. Despite their improved adjusted EBITDA profile as a result of cutting costs and raising fees, their platform is challenged with fewer events and fewer creators. It is unclear to us if this is more due to macro factors or price increases. Furthermore, we are unimpressed with EB’s management team – after many attempts we are still unable to reach them — and get the sense that they are indifferent to valid shareholder criticisms.

Douglas Dynamics (NYSE: PLOW) — mrkt cap $494; Price $21.4; EV/EBITDA 10

PASS. Douglas Dynamics is the leading manufacturer of snowplows and ice control equipment in North America. They sell heavily to distributors located in the Midwest and East Coast. Some of PLOW’s brands have been around for over 70 years. The typical end user has about 10 trucks and depends on these plows for their livelihood. Their sales cycle is dependent on snowfall in the months of October and November, which has been severely below average in their regions, hence the 52-week low stock price. “We approach each year as it could be one of our best or worst” is common to hear from PLOW management. We think PLOW is a good business with significant brand loyalty – we will keep it on our watchlist and wait for a better entry point.