Stock Sonar #20 - 8/16/2023

Quantum-Si Inc (NAS:QSI) — mrkt cap $280mm; Price $2.00; trailing P/E NA

SPECULATIVE POSITION INITIATED. We have a strong bias against biotechs as the technology depends on unpredictable variables, and these companies often lack fundamentals . However, this company appeared on our net-net screen and may hold some promise. The company is currently trading at around its cash value and has no debt. That being said, they are burning approximately $120 million in cash annually. Their IP promises to deliver the latest technology in democratizing protein sequencing, for which no reliable platform exists. Mass spectrometers, which are used to ID proteins based on protein fragments and determine their abundances, typically come with a price tag of around $500k to $1 million. If QSI’s technology proves successful, their sequencers, priced at $70k, could revolutionize next-gen sequencing in academic labs everywhere. The company has already received several orders in its pipeline and is actively working to optimize the product for a wide variety of customer sequencing methods. We have a conversation scheduled next week with two industry insiders: one who works with mass spectrometers and another who oversees several labs specializing in protein sequencing. If they view the technology as viable, we are considering allocating 1% of our portfolio to this company. The risk is high but the valuation is low enough where upside could be large.

GoPro (NAS:GPRO) — mrkt cap $582mm; Price $3.78; trailing P/E NA

PASS. GoPro sells miniature cameras for people to capture their adventure lifestyle. They have had surprising staying power here which has persisted over a decade with gross margins still exceeding 30%. GPRO looked interesting as they were bundling their video editing software offerings with their hardware. Essentially, they would subsidize the cost of the software for the first couple of years by giving a 100+ dollar discount to customers if they signed up for the app- which then costs about $50/year afterwards. The strategy was to get customers to use their software offerings enough to not churn when they had to begin paying for it. GPRO has not had much success as their software offerings are still far inferior to that of competitors. They have also seen a unit decline in sales from 4.3mm per year from 2017 to 2019 to about 3mm/year since. This is likely due to the steady technological progression of smartphones and the proliferation of drones. A company transitioning from hardware to software offerings is as difficult as one going from software to hardware.

Quest Resource Holding (NAS:QRHC) — mrkt cap $147mm; Price $7.46; trailing P/E NA

MORE RESEARCH NEEDED. We first examined this company in 2021 when it exhibited slight profitability, and its strategy of serial acquisitions for growth didn’t appear to offer compelling scale economics. The company handles the disposal of around 100 different types of waste streams for businesses across the United States and Canada. Their services are geared towards assisting companies with large brick and mortar footprints in effectively managing their waste, with a commitment to enhancing landfill diversion through composting and recycling. The company’s approach to growth is a simple algorithm: roll-up waste haulers where they need a regional presence, centralize costs and increase client penetration. Although their debt burden is substantial, the management has been gradually reducing this debt over time. The company’s scaling trajectory has been better than our initial assessment, warranting a renewed evaluation.

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