Zumiez (NAS:ZUMZ) — mrkt cap $349mm; Price $17.64; EV/EBITDA 5.4
We have exited ZUMZ. We discuss our exit here.
Carriage Services (NYS:CSV) — mrkt cap $378mm; Price $25.21; EV/EBITDA 9.6
PASS. Carriage Services is a roll-up that owns and operates 173 funeral homes and 32 cemeteries throughout the United States. The funeral home and cemetery industry remains heavily fragmented, with 80% of the market still in the hands of individual operators. The company was formerly led by its long-time founder and CEO Mel Payne, who recently faced health challenges with a stroke. The current management in place has held former positions at Service Corporation International – by far the largest player in the space. Given the industry’s predominant ownership by individual operators, there’s ample room for roll-ups like CSV. Despite our efforts, the impact of the COVID-induced surge in death rates and the growing preference for cremations over traditional burials—priced at a third of the cost—results in an unclear forward-looking profit picture. While this could make an interesting acquisition target for a PE firm, we cannot gain conviction and are passing.
Stemmer Imaging (XETA:S9I) — mrkt cap €210.6mm; Price €32.40; P/E 10.8
MORE RESEARCH NEEDED. Stemmer is the largest distributor/assembler of machine vision technology in Europe. The machine vision industry has been steadily growing and could see a step change in demand with the rise of GPUs and AI algorithms such as transformers drastically improving inference ability. As a distributor of machine vision components, Stemmer would be a direct beneficiary of this trend. Stemmer is a value-add assembler with the goal to have them be plug and play. It is positioning itself to be hardware and software agnostic to reduce reliance on suppliers. It will be important to assess the leverage of the component suppliers as that evolution will determine the profitability of Stemmer. The more modularized the value chain becomes, the more value accrues to Stemmer.
Lemonade inc (NAS:LMND) — mrkt cap $1.2B; Price $16.64; EV/EBITDA NA
PASS. Lemonade, a modern insurance player, is making strides in achieving more reasonable loss ratios across various lines of business. The company emphasizes advanced AI modeling, though historical internal data was limited until recently, positioning them as a leader in AI adoption within the insurance sector. For example, Lemonade employs a comprehensive dataset of around 4,000 points for assessing homeowners policies, in contrast to the approximately 40 data points used by traditional carriers. Advanced predictive techniques are at still low penetration rates across the industry. LMND reported improved Q3 earnings, and the stock saw a quick ~50% surge. Notable improvements in loss ratios across business lines and impressive growth in the pet care insurance segment are promising. However, the intensely competitive nature of the insurance market poses a challenge, with larger carriers potentially undercutting Lemonade in larger markets. Unless Lemonade focuses on niche lines, a sustained path towards profitability will be challenging.