Guess, Inc (NYS:GES) — mrkt cap $1.4B; Price $25.76; EV/EBITDA 6.8
PASS. Guess is a global brand and retailer that sells apparel and accessories. They have made recent strides to improve profitability, including closing ~280 stores. While this is positive, cost cutting is now most likely in its final innings, and the business does appear to be fully mature—it is hard to determine where their next growth opportunity lies. In many cases, an acquisition by management is effectively an admission that they lack growth opportunities. We believe Guess’ acquisition of Rag & Bone is an indication of this. We maintain a bias towards organic growth, and although Guess is most likely slightly undervalued, we cannot gain conviction in the business’s future strength. We will wait for a better opportunity elsewhere.
KKR & Co (NYS:KKR) — mrkt cap $86B; Price $97.2; P/E 24
PASS. KKR is a large Private Equity (PE) firm that has grown its assets to 550 billion (up 10% yoy). Private Equity companies enjoy an (unfair?) advantage over public equity managers in that their underlying investments have stable market values, giving LPs the illusion of security. Even if PE expected returns edge downwards, we believe institutions and HNW individuals will continue to increase exposure. Additionally, larger managers enjoy access to large bases of LP capital and have the ability to charge fees on uncommitted capital. In short, these are durable advantages that make them great businesses. It’s important to remember, despite the rebrand, Private Equity firms are LBOs, and as a result, their opportunity set is a function of debt markets and the broader economy. Higher interest rates and a weaker economy will reduce investment opportunities. Fundraising has been challenging for private equity markets over the last year; however, KKR’s geographic diversity has acted as a stabilizer. Unfortunately for us, KKR’s stock price has run up ~75% in the last four months, and we will wait for a better entry point.
Marvell Technology (NAS:MRVL) — mrkt cap $68B; Price $78.73; EV/EBITDA 70
PASS. MRVL is a leading fabless semiconductor company that designs and develops a wide range of components that facilitate the movement, storage, processing, and security of data. This ranges from Hard Disk Drive processors to DPUs to switches. MRVL holds significant market shares across these categories. As data center demand for larger data storage, lower latency switching, and faster data transfer compounds, MRVL will be a large beneficiary. However its lofty valuation, especially given it has legacy segments that are declining, will keep us on the sideline.