Consumer Portfolio Services (NAS:CPSS) — mrkt cap $167mm; Price $8.01; EV/EBITDA 14.2
PASS. We originally researched this name in our January Stock Sonar and assigned it a “MORE RESEARCH NEEDED.” After a push by the company to be more investor facing, we recently had a chance to speak with their COO. As a refresh, CPSS is one of the few well-run (indirect) subprime auto lenders in the U.S. Their secret sauce is having conservative underwriting standards and a large sales force that maintains relations with ~14,000 auto dealer locations across practically the entire country. They securitize and, through Citi, sell these securities to institutional investors and retain the servicing. According to our talks, the subprime auto loan market is incredibly robust and CPSS spends most its time turning away potential loans. Unfortunately for CPSS shareholders, this is a business that is in a “steady state” with no tangible plans for growth – they are not increasing their credit lines to get more deals done. So unless CPSS plans to pay shareholders large dividends (it has never paid a div) it is unclear what will catalyze their stock price.
Climb Global (NAS:CLMB) — mrkt cap $250mm; Price $54.60; EV/EBITDA 12
PASS. Climb Global is a distributor to resellers of cybersecurity solutions and data center software. They act as a middleman to the middlemen. CLMB differs from broadline distributors such as Ingram and Arrow Electronics in that they select high quality niche vendors that need a salesforce. CLMB is very selective with vendors and takes on less than ten percent of the vendors that come to them. Another differentiator is that CLMB only distributes software and not hardware, making their revenue stream significantly more predictable. As the US is significantly more consolidated than Europe, CLMB has begun to make acquisitions overseas, with the strategy to cross sell those vendors in the USA. Although management seems disciplined and is targeting a 15% ROIC on acquisitions, we will wait for evidence of execution before initiation.
CS Disco (NYSE:LAW) — mrkt cap $380mm; Price $6.29; EV/EBITDA NA
MORE RESEARCH NEEDED. CS Disco was founded in ’13 and provides cloud-based e-discovery software for use in litigation. Document review during discovery is an onerous legal process that can be greatly assisted with the right software and AI tools. They have rapidly gained share and the feedback for their software is largely commendatory. Disco has hit some revenue hiccups and is currently undergoing a CEO change – the name is down 90% since its peak. This company fits a cohort of companies we have been searching for – namely ones with promising tech that came to market too quickly (Disco IPO’d ’21) and are struggling with setting the right expectations with the Street. We will be further evaluating the leadership change and unit economics to gain more insight