Stock Sonar

Total Site Solutions (Ticker:TSSI)  — mrkt cap $26mm; Price $1.4; EV/EBITDA 7

SPECULATIVE POSITION INITIATED. We rarely invest in nanocaps and certainly not ones that have gone up three hundred percent in six months. That being said, we are happy to make an exception with TSSI. The reason? Capable management and modular data centers (AI play). Upon speaking with the new CEO, a former Dell executive, we came away impressed with the turnaround that has been implemented. TSSI acts as both a procurement agent and system integrator for companies looking to build edge/modular data centers. We believe there are significant tailwinds as companies look to build data centers closer to where data is generated – a phenomenon called ‘data gravity’ – a trend significantly accelerated by AI. Management believes there is the possibility of a 10x increase in business demand which would be a large driver of share returns. (TSSI is heavily reliant on Dell for revenue which creates concentration risk, but we believe this is mitigated given that TSSI management are former Dell executives.)

BOX Inc (NYSE:BOX)  — mrkt cap $3.9B; Price $27.14; EV/EBITDA 45

MORE RESEARCH NEEDED. BOX, a key player in cloud content management and file sharing, focuses predominantly on large enterprise customers. This differentiation from competitors like Dropbox, who cater more to general users, is marked by BOX’s robust compliance and security features tailored for enterprise needs. Additionally, its superior interoperability allows seamless integration with other enterprise tools, which is essential for maintaining competitive edge against giants like Microsoft. BOX is actively trying to expand its market share with innovative tools like Box Sign and advanced AI search functionalities, However, with the company appearing to be at a mature phase of its business cycle and trading at a high EV/EBITDA multiple of 45, a deeper dive into its growth strategies and market positioning is necessary before considering a core position.

Shutterstock (NYSE:SSTK)  — mrkt cap $1.5B; Price $42.6; EV/EBITDA 12

PASS.  As a leading provider of digital content, Shutterstock caters to users with a variety of subscription plans and on-demand services, offering access to a vast library of images, videos, and music tracks. It has shed roughly 65% of its market value from previous highs, and currently trades at what appears to be a reasonable valuation. However, the emergence of generative AI poses a significant existential threat to Shutterstock’s business model. In the foreseeable future, generative AI tools will enable the creation of similar digital content at little to no cost. While Shutterstock might pivot to licensing its extensive content library for AI training purposes, the uncertainty of such a transition presents risks.

Innodata (NAS:INOD)  — mrkt cap $266mm; Price $9.30; EV/EBITDA 43

PASS. Although INOD’s stock price surged nearly 40% earlier today due to a positive surprise in top-line results, we believe that INOD is not the AI play that many investors think it is. INOD was founded in 1988 as a publishing and media entertainment company. It has evolved over the years to assist companies with digital transformation and now helps companies with LLM generation through curating data sets. This is likely a very manual intensive process that gets outsourced to INOD and likely will become obsolete soon as this process becomes automated. We believe INOD’s future performance will resemble that of Appen, another AI data company.

United Natural Foods (NYSE:UNFI)  — mrkt cap $576mm; Price $9.7; EV/EBITDA 7.5

PASS. United Natural Foods is one of the largest distributors of natural, organic, and specialty foods to supermarkets and grocery stores. If the market structure is ideal, good distributors can be an example of a great business that has very low margins—usually two traits that don’t often gallop together. UNFI was chugging along just nicely until its self-inflicted and value-destructive acquisition of SuperValu in 2018 for ~3 billion. The goal was to broaden their offering and expand their range of conventional supermarket and grocery chains (pre-acquisition, roughly 1/3 of revenue was from Whole Foods). Integration has not proceeded efficiently, and gross margins have declined despite improving revenue growth—even after the acquisition, UNFI’s customers appear to have too much bargaining power. This is compounded by UNFI being inefficient with its assets. We will keep an eye on this one and look to pivot if they are making strides on the efficiency front.

CompoSecure, Inc. (NAS:CMPO) — mrkt cap $625mm; Price $7.75; EV/EBITDA 7.8

PASS. CompoSecure specializes in producing high-end metallic payment cards (think like an aluminum AMEX card). Traditionally partnering with major banks like Chase and American Express, CompoSecure’s revenue growth has stalled in 2023, with only a slight projected increase from 2022 and a significant drop in gross margin. Despite a sound balance sheet and optically low valuation, the company faces structural headwinds from the rise of digital and contactless payments, which threaten the demand for physical cards. The company is trying to diversify into cryptocurrency cold storage solutions, but efforts in this arena have yet to come to fruition. We generally stay away from businesses that are shrinking regardless of how low the valuation is.

Card Factory (LON:CARD)  — mrkt cap £341mm; Price £0.99; EV/EBITDA 3.6

CORE POSITION INITIATED. CARD is now our second largest position. We initially reviewed the company in our 3/13/24 Stock Sonar. CARD is a UK vertically integrated specialist retailer of greeting cards, gifts, and celebration essentials. We normally wait until after we publish our monthly initiation (which is right about the time we finish building our position) to reveal our new Core Position, but Card Factory reports earnings on April 30th and, although market reactions to earnings are impossible to predict, we believe earnings momentum is in CARD’s favor. In our Initiation Report that will be released on 5/1, we discuss why this opportunity exists, CARD’s competitive advantages, and why we expect significant price appreciation in the near term.

Intevac (NAS:IVAC) — mrkt cap $97mm; Price $3.65; EV/EBITDA 5

PASS. Intevac is a producer of thin film deposition systems and equipment for making hard disk drives. What caught our eye is that Hard Disk Drives is a declining industry and typically participants in these industries see significant profitability once supply consolidates (as the threat of new competition is inhibited). Intevac has just underwent a large cost cutting reducing headcount by 25% which is a step in the right direction, however, management is now pursuing growth via a new business segment which adds a significant degree of risk. On top of this Seagate makes up 92% of revenues which adds another degree of fragility.

Lovesac (NAS:LOVE) — mrkt cap $341mm; Price $22.24; EV/EBITDA 12

PASS. LOVE is an American furniture retailer, specializing in a patented modular furniture system called Sactionals. These are modular sofas that are made up of three types of pieces: seats, sides, and backs. The appeal is that they can be rearranged in any configuration and are easy to ship and assemble. Although LOVE has carved out a niche in the furniture industry, its high price point (a full sized sofa can cost up to $10k) is at odds with its minimalist design. Growth will likely falter unless it can position itself as more of a luxury brand. There have also been a large amount of bad reviews as quality has deteriorated, likely due to the large demand swings from COVID.

Alphawave (LSE:AWE) — mrkt cap £904mm; Price £1.24; EV/EBITDA 13.1

STARTER POSITION INITIATED. In our most recent stock report, we discussed AWE. Although we believed it was a promising company to capitalize on burgeoning AI networking trends, we found assessing its competitive positioning challenging and did not take a position. Recently, AWE guided for lower revenues in 2024, which led to a significant 30% decline in share price. This adjustment was primarily attributable to a strategic reduction in exposure to Chinese markets. Concurrently, AWE announced several design victories with top-tier AI and Data Center clients, focusing on cutting-edge chip technologies. These achievements mark initial indicators of AWE’s ability to compete with established industry leaders such as Broadcom and Marvell. Following the recent price drop, we have initiated a starter position in the company.

Match Group (NAS:MTCH) — mrkt cap $8.7B; Price $32.4; EV/EBITDA 11.3

PASS. MTCH, an online/app dating conglomerate, has declined roughly 85% from its all-time high in 2021. Owning major platforms like Tinder, Hinge, and Plenty of Fish, the online dating market has evolved from high turnover to a more oligopoly-like structure, dominated by Tinder, Hinge, Bumble, and Grinder. MTCH faces challenges as Tinder, which generates about 60% of its revenue, has stalled following monetization efforts, casting doubt on its ongoing popularity. Conversely, Hinge, known for its efficient matching algorithm, is growing rapidly and might compensate for declines in other areas. MTCH exemplifies the complexities of managing a conglomerate where some subsidiaries grow while others may shrink, making the overall calculus difficult. MTCH is especially challenging since the overlapping target markets of its subsidiaries pose a risk of cannibalization. Although the valuation might attract some, the inherent difficulties lead us to pass.

MDA Ltd. (TO:MDA) — mrkt cap $1.7B; Price $14.28; EV/EBITDA 12

MORE RESEARCH NEEDED. MDA has served as a provider of advanced space technology services to the global space industry for several decades. The company’s offerings encompass a wide range of technologies, including space robotics, antennas, and engineering payloads. Recently, MDA has benefited from the trend of decreasing costs in space flights, coupled with increased government expenditure. This has resulted in a compound annual growth rate (CAGR) of 25% in revenues over the past four years. With positive trends and a reasonable valuation, we plan to meet with Investor Relations (IR) to discuss the company’s strategic direction and gain deeper insights into their execution capabilities. The trends are positive and the valuation is not demanding. We will be meeting with IR to discuss in depth the company’s strategy and execution.

Centrus Energy (NYSE:LEU) — mrkt cap $684mm; Price $43.70; EV/EBITDA 8

SPECULATIVE POSITION INITIATED. We have previously written about Centrus Energy. We saw it as a compelling play on the future of US uranium enrichment. It is the sole US-owned uranium enrichment manufacturer, representing hundreds of millions to billions of dollars of IP and centrifugal technology. Over the course of a year, the position returned several hundred percent as a global sentiment shift on nuclear energy occurred. We subsequently divested from the position due to LEU’s significant reliance on uranium sourced from Russia, which we assessed as vulnerable to potential trade restrictions. Continued bipartisan support for nuclear energy, increasingly viewed as a vital complement to renewable energy sources, underscores the sector’s relevance. Notably, a recent allocation of $700 million to domestic High Assay Low Enriched Uranium production, for which LEU stands as the sole producer in the United States, signals strong governmental backing. Given the escalating energy demand driven by manufacturing onshoring, EV penetration, and the growth of data centers, we anticipate a significant surge in HALEU adoption. Combined with a diminished risk of sanctions on Russian uranium imports, LEU’s prospects justify the initiation of a speculative position.

PodcastOne (NAS: PODC) — mrkt cap $51mm; Price $2.22; EV/EBITDA NA

PASS. This company is a pure play in podcasting. They acquire distribution and advertising rights for popular podcasts and have revenue split arrangements with creators. PODC appeared on both our spin-off and special dividend screens. The parent company, LiveOne, spun off PodcastOne in September of last year via direct listing and paid a special dividend to shareholders. This is clearly an industry that could benefit from value-add consolidators like PODC but the company is also tainted with controversy – it acquired IP rights from Kast Media whose CEO was purported to have reneged on financial arrangements with creators (creator Theo Von put them “on blast”). PODC should be protected from any legal ramifications but nonetheless it is not a good sign. More work needs to be done on the relationship between their parent LiveOne but we are passing for now.

Ocado (LSE:OCDO) — mrkt cap £3B; Price £3.67; EV/EBITDA 30

MORE RESEARCH NEEDED. Ocado Group is a company that both sells online grocery technology to other businesses and operates its own online grocery retail business. Ocado boasts marquee clients such as Kroger and Casino Group. Although revenues have doubled in the last decade, cash flows have yet to materialize. Ocado stands to significantly benefit from the burgeoning online grocery trend, which is anticipated to gain further momentum in the foreseeable future. Further analysis is required to assess whether Ocado’s financial performance, particularly its profitability, will evolve in response to its competitive positioning and operational execution.

Hawaiian Electric (NYSE:HE) — mrkt cap $1.2B; Price $11.01; EV/EBITDA 5

PASS. Hawaiian Electric is the primary provider of electricity in Hawaii, serving 95% of the population. HE currently faces bankruptcy risk due to causing a major wildfire incident in Maui with share prices down approximately 75%. Legal action has ensued, with HE facing lawsuits from the families of the nearly 100 individuals who perished, as well as for the significant property damage caused. HE’s market valuation hovers around $1 billion, contingent upon the resolution of these claims, which may amount to as much as $6-7 billion against net assets valued between $4 – $5 billion. Given the extent of negative publicity and ill will, we believe that claims will reach these higher estimates. Despite the slight possibility that not all fires were directly attributable to Hawaiian Electric, its current market price is too high to warrant even a speculative investment position.

Gencor Industries (NYSE:GENC) — mrkt cap $250mm; Price $16.75; EV/EBITDA 8

MORE RESEARCH NEEDED. Gencor Industries is a leading manufacturer of machinery used in the production of highway construction materials. The company’s core products include hot-mix asphalt plants, soil remediation plants and combustion systems. Its backlog has increased by 50% yoy from strong demand due to road work driven by the IIJA. Although trends seem favorable, more research needs to be done to evaluate supply chain risks and the scalability of the business given its complex and custom product offerings.

Intellicheck Inc (NAS:IDN) — mrkt cap $66mm; Price $3.39; EV/EBITDA NA

PASS. IDN provides digital and physical identity validation solutions for various sectors including financial services, retail, and law enforcement. Around 2018, when CEO Bryan Lewis took the helm, the company drastically shifted their go-to-market strategy away from selling to bars and liquor shops. Competitors generally have an increased suite of security offerings, but Intellicheck’s competitive advantage appears to be an industry-leading fraud detection rate of 99.9%. More work needs to be done on why this cannot be replicated, but it appears they have long-standing relationships with state authorities and have a unique understanding of barcode formats. The company is close to cash-flow neutral and has recently undergone widescale changes to its sales force. Although there are definitely areas of the tech we like, this appears to be a company that is experiencing a high degree of flux regarding its operations and the efficacy of its sales strategy. We will wait for more clarity before proceeding.

SIFY Technologies (NAS:SIFY) — mrkt cap $240mm; Price $1.3; EV/EBITDA 7

MORE RESEARCH NEEDED. SIFY is the fourth largest data center provider in India and was one of the few reasonably priced companies on our AI screen. As the notion of Sovereign AI (the idea that countries will want to have their own AI in domestic data centers) gains momentum, we believe data center providers in other nations stand to benefit from this centralization of data and computation.  However more research needs to be done on the growth of demand and the infrastructure to be able to ascertain future economic prospects of the data center industry.  

CXApp (NAS:CXAI) — mrkt cap $35mm; Price $2.3; EV/EBITDA NA

PASS.  CXAI went public via SPAC and is another name that surfaced on our AI screen. Despite the cleverly named ticker, the company does very little with AI and is a SaaS business that is developing a “workplace super app.” While there are undoubtedly technological needs that employers could use to facilitate a WFH world for the laptop class, the CXApp currently fills only a small portion of those needs – helping employees order from the company cafeteria and book desks and conference rooms. They focus on firms with > 500 employees, and each contract requires significant custom build. The company is still in nascent stages, with revenue forecasted at an optimistic $30mm in 2025. We will pass for now and potentially revisit later on.

Hugo Boss (BOSS-DE) — mrkt cap €3.9B; Price €54.94; P/E 14.5

MORE RESEARCH NEEDED. Hugo Boss (BOSS), a renowned German fashion brand, has seen stagnant growth since 2015, with revenues hovering around €2.8 billion through 2021, attributed to lost consumer relevance and misaligned strategies under CEOs Claus-Dietrich Lahrs and then later, Mark Langer. Lahr’s luxury positioning in China and pricing strategies led to complications and impairment of revenue from the European wholesale channel, while Langer’s focus on operational efficiency over brand investment resulted in further stagnation. The appointment of Daniel Grieder as CEO in 2021 signals a promising turn, with strategies aimed at modernizing the brand and leveraging European wholesale relationships. The valuation is somewhat attractive but we have more work to do to understand how the brand revitalization is progressing.

Red Robin (NAS:RRGB) — mrkt cap $100mm; Price $6.5; EV/EBITDA 3.7

SPECULATIVE POSITION INITIATED. Red Robin is an overly indebted U.S.-based casual diner with roughly 500 restaurants located predominantly on the west coast. We passed on this name late last year but have recently had another look given the stock is down 45% YTD on higher-for-longer rate outlooks (RRGB debt costs are variable) and an overall challenging environment for restaurants as consumers shift spending to grocery stores. In November of last year, we spent time with the CFO discussing their “back to roots” strategy. New management has done away with Virtual Brands, discounting, and lack of investment. The company is guiding for 65mm EBITDA for FY 2024, with about ~30mm of that going to capital expenditure and ~22mm going towards interest payments. Sale-leasebacks will continue to reduce debt this year and are in part responsible for lower EBITDA targets (additional lease expense). We think highly of management and they have taken appropriate steps to improve RRGB. Given the recent sell-off, the risk/reward skew is attractive, and we are happy to initiate a position.

Zillow (NAS:Z) — mrkt cap $11.1B; Price $47.9; EV/EBITDA NA

PASS. Zillow has ambitions to become the housing super app. The name sold off ~16% after a seismic news event dropped in the real estate world (NAR Settlement 418mm). To summarize, buyers’ agents’ commission will likely have to negotiate fees directly with the buyer instead of being entitled to a commission on the sale. This will totally upend the way buyers’ commissions are currently paid. Roughly 65% of Zillow’s revenue is generated from buyers’ agents. Zillow generates leads, and agents pay monthly fees to receive these leads. Zillow generates additional revenue from their Rentals and Mortgage segment. And although they exited iBuying (instant buying), they have partnered with Opendoor as a risk-free way to reenter this market. We think there could be significant impacts to the ruling that have yet to reflect in Zillow’s stock price, and we will be patient, waiting for a better opportunity. (After any significant news event, we take a fresh look at names that are impacted – this is a good example).

Vimeo (NAS:VMEO)  — mrkt cap $937mm; Price $5.58; EV/EBITDA 22

PASS. VMEO was founded in 2004 and is a niche alternative to Youtube. It caters to high quality content creators, businesses, and Youtube outcasts (either they have been kicked off the platform or convert people to Vimeo given the lower revenue share). Users that upload videos pay Vimeo with different tier subscription plans as Vimeo does not serve advertisements. Although its TAM is limited, VMEO has a robust business model and generated positive cash flow in 2023. We will wait for a pullback in price before considering a position.

Card Factory (LON:CARD)  — mrkt cap £323mm; Price £0.94; EV/EBITDA 3.6

MORE RESEARCH NEEDED. A UK vertically integrated specialist retailer of greeting cards, gifts, and celebration essentials. The business struggled post-COVID as they shut down their 1,000-store retail footprint and the sale of greeting cards moved to grocery stores. Since then, the company has slowly regained its footing, with revenue growing steadily since FY ’21. The market doesn’t think too highly of the retail greeting card business, probably due to online competition, e-cards, or a general belief that fewer people are buying greeting cards. We have a few reasons to disagree but still have research to do on the industry. Additionally, more research needs to be done on CARD’s growth drivers. But so far, we like what we see.

PubMatic (NAS:PUBM) — mrkt cap $1.1B; Price $23.0; EV/EBITDA 23

MORE RESEARCH NEEDED. PubMatic runs an online marketplace that connects digital content creators with advertisers. They make it convenient for buyers (advertisers) to review ad space supplied by publishers and then have a bidding structure in place that allows for purchase. They generate a large portion of their revenue not only by selling ad space to advertisers but also by selling this ad space to other platforms. The digital ad space is complex and seems to be in a state of constant evolution. We have previously discussed how media fragmentation is an underfollowed megatrend. CMOs are struggling with complexity such as where to advertise (Google, Meta, OTT, Linear TV, etc.). PUBM is solving some of these problems by selling ad space on a variety of formats, including streamed content. The valuation does seem rich but perhaps the business model and market opportunity warrant it. Still more digging to do.

Graftech (NYSE:EAF) — mrkt cap $480mm; Price $1.87; EV/EBITDA NA

PASS. We first wrote about EAF in September of last year. More research was needed to determine how their business was evolving with EV demand. Since then, it has fallen by more than 50%. To recap, EAF is a vertically integrated manufacturer of graphite electrodes. These are used in electric arc furnaces (EAF) to produce steel. Potential green shoots for them involved converting their needle coke into anodes for EV batteries. However, there has been no headway here (with prospects likely years away) and supply from India and China will continue to keep prices depressed in the electrode segment. Coupled with their high margin long-term agreements expiring this year, EAF is in for a tougher time ahead.

Guess, Inc (NYS:GES) — mrkt cap $1.4B; Price $25.76; EV/EBITDA 6.8

PASS. Guess is a global brand and retailer that sells apparel and accessories. They have made recent strides to improve profitability, including closing ~280 stores. While this is positive, cost cutting is now most likely in its final innings, and the business does appear to be fully mature—it is hard to determine where their next growth opportunity lies. In many cases, an acquisition by management is effectively an admission that they lack growth opportunities. We believe Guess’ acquisition of Rag & Bone is an indication of this. We maintain a bias towards organic growth, and although Guess is most likely slightly undervalued, we cannot gain conviction in the business’s future strength. We will wait for a better opportunity elsewhere.

KKR & Co (NYS:KKR) — mrkt cap $86B; Price $97.2; P/E 24

PASS. KKR is a large Private Equity (PE) firm that has grown its assets to 550 billion (up 10% yoy). Private Equity companies enjoy an (unfair?) advantage over public equity managers in that their underlying investments have stable market values, giving LPs the illusion of security. Even if PE expected returns edge downwards, we believe institutions and HNW individuals will continue to increase exposure. Additionally, larger managers enjoy access to large bases of LP capital and have the ability to charge fees on uncommitted capital. In short, these are durable advantages that make them great businesses. It’s important to remember, despite the rebrand, Private Equity firms are LBOs, and as a result, their opportunity set is a function of debt markets and the broader economy. Higher interest rates and a weaker economy will reduce investment opportunities. Fundraising has been challenging for private equity markets over the last year; however, KKR’s geographic diversity has acted as a stabilizer. Unfortunately for us, KKR’s stock price has run up ~75% in the last four months, and we will wait for a better entry point.

Marvell Technology (NAS:MRVL) — mrkt cap $68B; Price $78.73; EV/EBITDA 70

PASS. MRVL is a leading fabless semiconductor company that designs and develops a wide range of components that facilitate the movement, storage, processing, and security of data. This ranges from Hard Disk Drive processors to DPUs to switches. MRVL holds significant market shares across these categories. As data center demand for larger data storage, lower latency switching, and faster data transfer compounds, MRVL will be a large beneficiary. However its lofty valuation, especially given it has legacy segments that are declining, will keep us on the sideline.