Stock Sonar #31 - 11/15/2023

Advanced Emission Solutions (NAS:ADES) — mrkt cap 70mm; Price $2.14; EV/EBITDA NA

SPECULATIVE POSITION INITIATED. This is a highly speculative position with a likelihood that it can go to zero; however, there is also a chance that it can be a ten bagger (10x return). ADES is on its way to being a pure play producer of a specialized filter (think like a Brita filter) that will be in high demand once a potential landmark EPA regulation is passed. To speak technically, ADES’s legacy business is manufacturing powdered activated carbon (PAC) which is used to capture air contaminants from coal fired generators. ADES is transitioning from PAC to provide granulate activated carbon (GAC) instead. Why? To be able to meet the sea change in demand caused by the proposed EPA ruling on per-and polyfluoroalkyl substances (PFAS). These forever chemicals are highly carcinogenic and were manufactured extensively by companies such as 3M as they had desirable manufacturing qualities. The EPA will be proposing the first ever limit, potentially set to 4 ppt (parts per trillion) for water utilities. The most cost-effective way for utilities to treat water is through GAC. If this happens, ADES will be ideally positioned to take full advantage (see more on our portfolio positionings below).

Enphase (NAS:ENPH) — mrkt cap 12.4B; Price $91.39; EV/EBITDA 14

STARTER POSITION INITIATED. ENPH is a provider of solar micro-inverters and batteries. ENPH has chosen a different approach than other solar providers by opting for a more decentralized layout which ensures higher reliability, safety, and convenience. Along with their products being easy to use for the end consumer, installers also view them as the most convenient and safest system along with providing the highest customer service. This is exhibited by their high NPS scores and the longest warranties in the industry. Although the solar industry has hit a temporary lull due to its discretionary nature and unfavorable regulation in the USA, we believe the industry has secular drivers and ENPH will be able to capitalize on this.

Stagwell Inc (NAS:STGW) — mrkt cap $1.3B; Price $4.9; EV/EBITDA 8.2

EXIT. We discussed STGW on our 9/6 Stock Sonar and initiated a position. Stagwell is a new-age marketing agency that serves blue chip companies and has grown through acquisitions. Although STGW fits nicely with the media fragmentation trend, we had trouble digesting the company’s complex accounting. Serial acquirers and companies that go public via reverse merger can tempt management to engage in a degree of accounting creativity so caution is paramount. As their previous auditor stated in the 10k “the volume of contracts and the diversity…introduces significant complexity in assessing the accounting.” To be clear we are not disapproving of their accounting practices, just that it falls into the “too hard” bucket and even after several discussions with IR we are unable to reach a high level of comfort. We have divested the name and were down ~12% since purchase.

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