Stock Sonar

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.

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.