Stock Sonar #41 - 1/24/2024

Berkshire Hathaway (NYS:BRKB) — mrkt cap $817B; Price $376; P/B 1.6

PASS. We believe that the risk is reasonably high that Berkshire will underperform the market on a go-forward basis. Berkshire relies on two drivers of value – one is their investment portfolio, and the other is their collection of subsidiaries. It is unclear to us how the investment portfolio will continue to be a driver of value it once was, and we believe that Berkshire should officially de-emphasize the importance of the investment portfolio to focus efforts on fixing and enhancing its subsidiaries. Berkshire 1.0 was largely an investment manager and budding conglomerate. For Berkshire to address its vulnerabilities, Berkshire 2.0 would need to complete its transition into a full conglomerate. In case readers missed it, we have written about this here.

Abercrombie & Fitch (NYS:ANF) — mrkt cap $5.2B; Price $103.9; EV/EBITDA 10.7

PASS. ANF is an American lifestyle retailer that also owns the Hollister brand. They have seen an impressive re-rating of their fundamentals in a challenging environment. Recent quarters have seen year-over-year revenue growth of over 15%, with earnings also improving. This is surprising because when we originally researched ANF in 2016, it was dubbed the most hated retailer in America by various consumer surveys. This was due to a ‘models only’ hiring policy and an overall brand image that was viewed as racially alienating. Longtime CEO Franz Horowitz engineered an impressive turnaround by using consumer intelligence to do more ‘chasing.’ They succeeded in their goal of staying true to their American heritage while tactically adjusting to fast fashion trends. After achieving the proper product assortment, ANF successfully used influencers and affiliates to raise awareness about their rebranded image. Although we like the company, in this environment, the price is slightly high, and we will wait for a better price before reconsidering.

Kalray (PA:ALKAL) — mrkt cap €175mm; Price €20.65; EV/EBITDA NA            

MORE RESEARH NEEDED. Kalray is a fabless semiconductor company that designs Data Processing Units (DPUs). DPUs are specialized processors designed to offload specific compute tasks from CPUs. These tasks are workloads such as data transfer, security, and data compression. DPUs essentially orchestrate data transfer from cloud to edge to premise whereas historically data has been more fixed in a central location. Kalray recently partnered with Dell which provides them access with distribution. Kalray competes against larger player such as Nvidia and Marvell and has positioned itself to go after more specific workloads and smaller customers. KLRY has grown 60% yoy and is currently value at about 7x revenue. The DPU market is set to grow to 6B by 2031, roughly a 27% CAGR from today.