Stock Sonar #40 - 1/17/2024

Dr. Martens (LSE:DOCS) — mrkt cap £750mm; Price £0.78; EV/EBITDA 4.4   

ADD. We initiated a starter position on 12/6/23 following a ~20% drop after a predictably weak earnings report. DOCS, the world’s leading boot brand, went public in 2021 and since its acquisition by a PE firm in 2014, the brand has gradually transitioned from selling through distributors and wholesalers to a DTC mode (now ~50% of current sales). We attribute DOCS long-term growth to effective execution, store expansions in key cities, and improved brand and product awareness. The substantial price drop since IPO  (~80%)  can be attributed to an overvalued IPO, operational challenges in the U.S., and footwear category macro headwinds. However, we believe that DOCS has the potential for recovery in the U.S. and we hold management in high regard, as they take their role as custodians of the brand seriously. Our ongoing discussions with IR increasingly reinforces our view that the stock’s undervaluation presents an attractive entry opportunity (In addition, DOCS pays a 7+% div yield).

Powell Industries (NAS:POWL) — mrkt cap $967mm; Price $81.05; EV/EBITDA 12

MORE RESEARCH NEEDED. POWL is a leader in custom design, manufacturing, and servicing of electrical distribution solutions such as switchgears and power control rooms. A large part of its business has been historically tied to the O&G sector however recently it has seen demand from the electrical infrastructure upgrade along with data centers. Data center capex spending has been exploding with the rise of computationally intensive AI models. POWL revenues increased 32% yoy however this could be the start of a larger trend. POWL has no debt and significant operating leverage. The fragility of its current customer base in the current macro environment is the biggest question mark and more analysis needs to be done here.

ZipRecruiter (NYS:ZIP) — mrkt cap 1.4B; Price $14.1; EV/EBITDA 14.7                            

PASS. ZipRecuiter is one of the largest online job market places in the U.S. with the other two major competitors being LinkedIn and Indeed. We have firsthand experience with the product from previous roles on the employer side and found it to be highly efficient. The company greatly benefited from a hot labor market marked by substantial turnover. The majority of their revenues come from a solid SAAS business model, with over 100k employers on the platform paying on average ~1.7k quarterly. We hold a positive view of the business model and the value proposition of the product. Given the negative macro momentum surrounding job openings and an overall slowing labor market, we think the likelihood that this stock goes on sale is moderately high and it will remain on our watchlist.

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