ThoughtWorks (NAS:TWKS) — mrkt cap $912mm; Price $2.86; EV/EBITDA 56
PASS. ThoughtWorks, another company from the class of ’21 IPO (down ~90% since IPO), is a premium provider of agile digital transformation and software consulting services. These services should be in high demand in a world shifting to AI; however, revenue from Q1 has seen a YoY decline of 19%. Consulting businesses are notoriously difficult to scale as services start to regress from high quality and customized to commodity-like to enable scale. TWKS is a victim of its own growth and increased competition. Although they still retain a strong brand, their premium pricing will likely continue to erode in this environment.
Monro (NAS:MNRO) — mrkt cap $743mm; Price $24.86; EV/EBITDA 9
MORE RESEARCH NEEDED. MNRO is an automotive service provider that has over 1300 stores in 32 states. About half of MNRO’s business comes from tire sales, which consumers defer spending on during recessionary environments. Combined with the narrative that EV penetration will be the end of automotive shops, MNRO’s share price has seen significant decline and is now where it was 14 years ago. The new CEO who came in late 2021 is from Advance Autoparts and is relentlessly focused on profitability; the first step being either closing or improving the operations of underperforming stores (numbering about 300). These stores are either in a bad location or can be operationally fixed. For mature industries, we always like to see a focus on profitability along with sound capital allocation – in which MNRO’ two policies are to pay down debt and return cash to shareholders. Although the industry is seeing some overall trepidation, we believe that EV penetration will not have as large of an effect as the market ascribes. We have a call with IR to discuss the company in more detail.
Aspen Aerogel (NAS:ASPN) — mrkt cap $2.36B; Price $30.50; EV/EBITDA NA
PASS. ASPN is a manufacturer of aerogel, one of the world’s best insulators.Although this technology has been around for decades, it may be finding a novel use case in electric vehicle car batteries as an insulator between battery cells. ASPN’s share price has gone up 5x in the last year as investors have eagerly accepted this new growth narrative. However, the aerogel industry is competitive with both national and global competitors. We believe ASPN is trading at much too rich of a multiple at around 6x revenues given the nascency of this EV business and the competitive landscape. Investors in ASPN are making two implicit bets: first, on the sustained use of aerogel in car batteries, and second, on ASPN’s ability to outperform its competitors.