For years, this management has been making promises and timelines that they were not able to meet (the CEO, whom I talked to recently, has an Elon Musk-type personality, which a company this size hasn’t benefited from). Now, it seems that moving forward is inevitable.

This provides an asymmetric opportunity where the downside is limited due to regulation-guaranteed growth, while the upside prospects are numerous. Any indication of a kept promise should make the stock rise.

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Performance

During the second quarter of the year, the LongView Capital portfolio appreciated by 21.9% versus 1.78% for S&P 500 EUR.

Since its inception, the portfolio has returned 53.64%, compared to a 4.32% return by the S&P 500 EUR.

Contributors

In Q2, the market had a risk-on approach, and thus Nebius Group was the best performer in the period (over 130% return).

The quarter reflected the portfolio’s strategy perfectly. We took an educated bet during Q1 on Nebius, seeing a beaten-down company that could rebound rapidly if the tariffs were delayed (or cancelled), and it played out as intended. Throughout the quarter, we continuously adjusted our position to counter the market and reduce risk as it reached new highs. At the time of the letter release, we closed out the position at an approximate gain of 150%.

Another notable company was TransMedics, whose stock’s movement, rather than its financial performance, exceeded my expectations. I had expected the market to have factored the flights’ outperformance into its valuation (see Q1 report). As expected, the company crushed its Q1 earnings. You can find a live flight tracker here. While there was some seasonal weakness in July, we saw their founder buy $2 million worth of stock and the beginning of the flights ramp up.

Other quick mentions:

• Legacy Education did well on its earnings, which I wrote up. The total return for my paid subscribers now stands at 52.3% since my write-up in February. Find both write-ups below.

• Pitney Bowes continues to exceed expectations. During Q2, Kurt Wolf assumed the role of CEO and outlined some near-future actions concerning increased share repurchases, faster-than-expected deleveraging and, most importantly, a strategic review of the company. Besides basic optimisations, I believe Mr. Wolf could be playing for a sale, which would likely occur at stock prices >100% higher. Nevertheless, I am happy to hold in any case and believe that the stock is significantly undervalued (Berkshire Hathaway director Meryl Witmer agrees, having just pitched the company to Barron’s, which led the stock to rise 13% in a single day). Furthermore, after reporting Q2 earnings, the company’s stock has been performing rather poorly. While there were negative aspects about the quarter (Presort issues due to the (now) previous management prioritising high margins vs total growth), the company raised the 2025 EPS forecast due to buybacks. After the quarter was released, Mr. Wolf initiated a non-dilutive convertible offering (if you want the financial engineering explanation, DM me) to buy back shares even faster. The company and its CEO are fully aligned to provide great long-term shareholder returns, and so I am happy to continue holding my position.

• Douglas Elliman was wrapped in rumours about a $4/share takeover, which caused the stock price to increase. As nothing materialised, the stock has since trended down. Nevertheless, I believe in the long-term prospects of the company and continue to hold.

Detractors

The only thing to note here is that I followed Nat Stewart in selling ATEX. The stock price continued to stagnate, and it appears that the possibility of a takeover at a significantly higher price has diminished. I prefer to take my money and move to higher-IRR and higher-conviction plays.

I also exited some other companies, about which paid subscribers were alerted live.

Positioning for Q3/Q4

One thing microcap investors often forget: in downturns, liquidity in the riskiest names can drop to near zero. Who’s stepping in to buy a stock that’s down 90% while they’re worrying about their mortgage? This market can make high-risk/high-reward names look far more liquid than they’ll be when conditions normalise. Keep that in mind.

Now, however, I still think that the current bull run has some legs. During my initial drafts of this quarterly letter, I wrote extensively about uncertainty and the market's lack of awareness of it. Now that tariff deals have finally begun to be made, it seems that the market was right, and I was wrong to be as cautious as I was. I sold NBIS and increased my TMDX and PBI positions as I was the most bullish on them (and still am).

We are now up approximately 20% YTD at the time of the letter release, and I need to find more great opportunities to deploy some of the cash position we have built.

I will soon be releasing a write-up on an asymmetric play with regulatory (no, not telecom) tailwinds on a company with disappointing IR and many past delays, which led to a sharp decrease in stock price. However, one particular event makes it so no more delays are possible, which my discussions with the CEO confirmed.

Write-ups

Current returns of YTD stock write-ups/mentions:

Write-ups:

1. LGCY (FEB): 52%

2. Fallen 70% gross margin turnaround (MAY): 1%

3. Nanocap special situation (JUN): 54%

Average: 36% (not good enough with such volatile stocks, but acceptable as a short-term result).

Annual picks: +24% (will do a separate post on the holdings and their performance).

Research report (JUN 27):

1. ALOT: 23% +

   My report comment: “I am putting this one on the watchlist and will dive deeper if Mr. Patel wins the proxy fight on July 9th.”

2. ARQ: 33% +

   My report comment: “Putting the company on my 'high-priority‘ research watchlist and consulting experts to see how likely the company is to launch the plant as now guided.“

3. MYO: -49% +

   My report comment: “Despite these developments, I remain sceptical that the company can materially improve bottom-line margins or scale sufficiently to justify its current risk profile—especially given a year-over-year decline in backlog.“

All content is provided for informational and educational purposes only and does not constitute investment advice. You are fully responsible for any decisions made after reading my materials. My analysis, which may contain errors, is based on public information such as SEC filings, press releases, interviews, and current events. Past performance does not guarantee future results.

My affiliates or I may hold positions in the securities discussed at the time of publication, and we are under no obligation to maintain them. Neither I nor my affiliates accept any liability for any direct or indirect loss arising from the use of this information. Nothing herein is an offer or solicitation to buy or sell any security.

The Rhode Island-based printing technology manufacturer operates through two primary segments: Product Identification (PI) and Test & Measurement (T&M), serving aerospace, defense, and industrial printing markets (for example, making label printers).

The company showed up on my screeners as a potential turnaround play. They have implemented a cost-reduction program (goal: $3m/year). Additionally, they aim to boost inventory turns, diversify the supply chain, replace legacy printers with modern ones, simplify the supply chain, and cut costs. However, in addition to the great opportunities that lie in the business, there are many red flags with the company’s management.

First, they have dealt a devastating blow to the company by acquiring MTEX without conducting thorough due diligence. After the transaction, it was discovered that the company was not as successful as initially indicated, which led ALOT to perform a 70% ($13.4M) goodwill impairment and shut down 70% of its operations. It is still losing $1m a quarter, which is significantly impairing the consolidated financials.

Moreover, management has long been discussing the issue of increasing inventory turns, but it has only continued to rise with no real actions taken. That is the reason why I don’t trust that this time the turns will somehow improve without changing the management.

Activist Samir Patel with Askelladen Capital is now leading a proxy fight to turn the business around. After reading his initial presentation and the company’s textbook proxy defence response (find both below), I believe that his proposed action plan and the board make much more sense than the current underperforming management. I highly recommend reading both presentations to gain a comprehensive understanding of the situation.

I am putting this one on the watchlist and will dive deeper if Mr. Patel wins the proxy fight on July 9th.

Resources to get a closer look:

• Mr. Patel’s proxy presentation

• Mr. Patel’s held “townhall“ transcript:

  

  Alot Townhall Transcript

  294KB ∙ PDF file

  Download

  Download

• AstroNova’s response presentation

• Latest quarter (FY26 Q1) earnings presentation

Quick reminder: there are only 2 days left to claim a 30% lifetime discount.

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Arq (ARQ) → MC: $210.2M┃EV: $241M┃P: $5.43

Arq is an entirely domestic climate-tech company that manufactures activated-carbon products designed to reduce and, in some cases, reverse environmental damage. While its technology has countless applications, the one that caught my attention is water treatment.

In April 2024, the EPA issued the first legally enforceable standards for PFAS “forever chemicals” in drinking water. That rule is expected to drive a 3x-5x surge in demand for granular activated carbon (GAC) over the coming years. Arq is perfectly positioned to benefit, having built a mechanically finished—but not yet launched—manufacturing plant with a 25-million-pound annual capacity (52% of which is already contracted). However, technical issues in the product-binding and shaping processes have delayed commercial production to Q2–Q3 of 2025.

Although Arq has implemented operational improvements that have slightly boosted profit and revenue, the company has been betting heavily on this new plant. Its cash from operations weakened last quarter (due to investments in the plant), its share count rose by 15% over the past year, and it has invested more than $80 million in CAPEX for construction.

Analysts still forecast nearly a tenfold increase in EBITDA over the next four years, implying a 3.4× EV/EBITDA or 5× P/E ratio at today’s valuation—but those projections leave little margin for further hiccups or dilution.

Ultimately, Arq’s fate looks binary: stock price will likely depend on when the plant comes online and how quickly it ramps up. The underlying demand is undeniable, and a smooth launch could reshape the company’s economics.

Putting the company on my “high-priority“ research watchlist and consulting experts to see how likely the company is to launch the plant as now guided.

Resources to get a closer look:

• Interview with Arq CEO transcript (highly recommend reading):

Arq, Interview With The Ceo

160KB ∙ PDF file

Download

Download

• Latest quarter (FY25 Q1) earnings presentation

Myomo (MYO) → MC: $79.9M┃EV: $66.6M┃P: $2.2

The United States company designs, develops, and manufactures wearable robotic braces (MyoPro) to assist individuals with weak or paralyzed arms in their daily activities.

On April 1, 2024, CMS began reimbursing MyoPro under Medicare Part B, vastly expanding the addressable market—59% of Q1 2025 revenues now come from Medicare patients.

This reimbursement boost drove 97.6% revenue growth (LTM), wider margins, and improved operational metrics. The company is targeting $100 million in revenue and $15–20 million in EBITDA by 2028, with the potential to reach cash-flow breakeven in 2025.

Despite these developments, I remain skeptical that the company can materially improve bottom-line margins or scale sufficiently to justify its current risk profile—especially given a year-over-year decline in backlog.

Pass for now.

Resources to get a closer look:

• Investor day presentation

Investor day transcript:

Myo Investor Day

831KB ∙ PDF file

Download

Download

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Disclaimer:

All content is provided for informational and educational purposes only and does not constitute investment advice. You are fully responsible for any decisions made after reading my materials. My analysis, which may contain errors, is based on public information such as SEC filings, press releases, interviews, and current events. Past performance does not guarantee future results.

My affiliates or I may hold positions in the securities discussed at the time of publication, and we are under no obligation to maintain them. Neither I nor my affiliates accept any liability for any direct or indirect loss arising from the use of this information. Nothing herein is an offer or solicitation to buy or sell any security.

This stock is so small that the market is unable to properly price its hinted return to growth.

I have found a $7m market cap telecom company that operates in segments with an expected 15-30% 5-year CAGR and is now poised to capitalise on that after a successful restructuring (reduced net debt by 86%).

The company has announced that they have entered the United States market (in which deregulation of the telecommunications industry serves as a significant tailwind) with a $1 million contract already in place. It looks to be just the beginning with substantial growth ahead.

Finally, they have released a revenue outlook of $45 million for 2030 (7 times its current market cap, with an implied 17% CAGR).

Nevertheless, the stock is cheap in every way you can think of: 5.8 P/E, 22% FCF yield, 0.4 EV/Sales, etc.

The downside seems limited, as the company just had one of its subsidiaries valued at 3x the company’s enterprise value by a third-party accountant and business advisory firm.

The approximate 5-year IRR comes out to around 45%.

Remember, there is currently a 30% discount promotion going on for my early subscribers (You!). You can join here:

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Third Quarter Fiscal 2025 Financial Highlights:

• Revenue grew 50.7% to $18.6m

• The number of new student starts increased by 70.7%

• EBITDA of $3.8m and adjusted EBITDA of $3.9m

• Net income of $2.8m (up 57% YoY)

• Diluted earnings per share of $0.21 (only a 10% increase YoY due to the dilution by the IPO. The company itself doesn’t use a lot of dilution to finance acquisitions)

• Student population of 3,245 (including Contra Costa Medical Career College ("CCMCC")), a 49.8% increase from the third fiscal quarter of 2024

The good (the quarterly call and financial report were both relatively short, so not that much info, but still some interesting information):

• The company now has $17.33m of cash with under $1m of debt — lots of dry powder for acquisitions (more on that later).

• Cash from operations grew 78.3% YoY.

• “Our focus on allied health education continues to resonate in a market hungry and desperate for skilled professionals.“

• The company is expanding hybrid learning capabilities → crucial for long-term scaling.

• The Contra Costa acquisition seems to have been accretive (as I have analysed in my earlier write-up).

• The company is actively looking at new M&A opportunities and seems to be in the talking stages with some of its potential targets.

• Acquisitions continue to be seen as the main avenue of growth, in addition to some cost optimisations.

• “We’re also launching new offerings in high-demand fields like sterile processing, surgical technician and EMT“.

  • Once approvals are obtained, the EMT program will be rolled out across more campuses; it’s currently only at Temecula.

• This quarter, some growth came from extra added nursing and imaging classes (the management seems opportunistic to use bursts of high demand for specific programs to increase revenues).

Areas of slight concern & next steps

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First, check out my write-up I sent out yesterday:

Key financial metrics:

• Revenue: $58.1 million (a slight decline from the previous quarter)

• Adjusted EBITDA: $9.8 million (17% of revenue)

• Free Cash Flow: $8.4 million ($0.25 per diluted share)

• Gross Margin: 69% (up from 68%)

• Net debt: Reduced from $43.3M to $35.8M

Quarterly results were in line with expectations. Over the past six months, the company has generated over 12% of its market cap in operating cash flow.

MOST IMPORTANT HIGHLIGHTS:

• Large deal pipeline up 90%

• 24% increase in 90-day forward pipeline

• 2x increase in prem UcaaS pipeline (from the bankruptcies mentioned)

• They have been maxing out the share repurchases

• NPS score is now up 4x YOY, and client satisfaction scores are up 23% -> critical for organic growth I talked about in the writeup

• The CEO doesn't seem to be in a hurry to make acquisitions (good), but still admits it's an essential part of the strategy (though promises they won't dilute at all)

• Expects gross margins to get to 75-80% by FY 2026 H2

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All this signals a clear trend towards higher organic growth, a key factor for a multiple re-rate.

OTHER HIGHLIGHTS:

• The ERP system will save around $5M over the next 3 years, and the costs to set it up were realised entirely this quarter.

• The management continued to signal the move away from non-core non-recurring products into the high profitability recurring ones (the loss of the non-recurring products led to a small expected decrease in revenue)

• Churn decreased again, now at 0.9% compared to 0.95% last quarter

• No tariffs impact on the business (they mitigated the risks they saw)

• Their competition is crumbling as the industry faces margin erosion. Sangoma Tech is very well positioned to take the market share left by the bankrupt companies.

• Balance mentions assets "held for sale" -> they are indicating the divestitures to be happening soon (mostly a hardware products company)

• Continuing to expand their offering.

All in all, I can only reaffirm my thesis, which I laid out yesterday in my write-up. However, I now realise that the return of organic growth will be an even more critical part of the story. The numbers show a great future ahead—let's see if they can deliver.

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Disclaimer:

All content is provided for informational and educational purposes only and does not constitute investment advice. You are fully responsible for any decisions made after reading my materials. My analysis, which may contain errors, is based on public information such as SEC filings, press releases, interviews, and current events. Past performance does not guarantee future results.

My affiliates or I may hold positions in the securities discussed at the time of publication, and we are under no obligation to maintain them. Neither I nor my affiliates accept any liability for any direct or indirect loss arising from the use of this information. Nothing herein is an offer or solicitation to buy or sell any security.

Going A-Z on a recent screen, I found a technology business with a high gross margin, low churn, many operational inefficiencies, failed/non-core acquisitions, and still high cash flow from operations. It doesn’t appear on most screeners, as the net income amount is distorted by non-cash expenses, making all financial metrics look terrible.

Now, this is where it gets interesting:

1. The company has managed to attract an experienced operational CEO who has since put a larger portion of his net worth into the company and options with exercise prices 50-300% higher.

2. For him, fixing fundamental inefficiencies and propping up the business will be pretty straightforward, while divestitures and new product avenues will drive organic growth.

3. The company is currently doing buy-backs and deleveraging, and the CEO has a super optimistic outlook in all communication.

I estimate a 100% upside in 1-2 years if initial plans and basic steps are completed (medium-high probability) and a 3-4x upside in 4-5 years if the turnaround is completed successfully.

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I am glad to share that we have amassed a community of 880+ investors who genuinely care about not following the current, but trying to find ways to fly above it. Additionally, I am incredibly grateful to the eight paying subscribers who support my investing journey. As you know, my quarterly reviews will be free to all but still available seven days early to the paying subscribers. They will comprise my most recent thoughts, performance, and outlook.

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Q1 Performance

1. LongView Capital

   During the first quarter of 2025, LongView Capital (a privately managed portfolio) depreciated by 6.44% compared to the -8.1% return for the S&P 500 EUR benchmark.

   Since inception, the Fund has achieved a cumulative return of 26.03% vs. 2.49% for the benchmark.

   While the current super-short cumulative result is satisfactory, I believe I should learn to minimize drawdowns like the one in March by better managing my portfolio structure. The market has rewarded high-risk investments for the past couple of years, and only now will we see who has been swimming naked.

   Nevertheless, I am excited about the fact that I get to build a portfolio that does not exclusively include microcaps or special situations but combines them in a way that allows me to capture the upside of bull markets while still protecting the downside when I play it right.

   I will not be a passive bystander in this market and will extract every inch of opportunity I can find. Read my strategy below.

   

2. #2025 picks

• Legacy Education ($LGCY): -13.2%

• Simply Solventless Concentrates ($HASH): -19%

• Gorilla Technology ($GRRR): 48.81%

• TransMedics Group ($TMDX): 5.13%

Weighted return: +5.44%

There is not much to say here, but I will definitely write more about these companies as they announce earnings.

Positioning

These were my top 3 positions by size at the end of Q1:

TransMedics Group ($TMDX): 17.7%

TMDX engages in transforming organ transplant therapy for end-stage organ failure patients in the United States and internationally. The company offers Organ Care System (OCS), a portable organ perfusion, optimization, and monitoring system that utilizes its proprietary and customized technology to replicate near-physiologic conditions for donor organs outside of the human body. (Finchat description)

TransMedics Group is a company that I like for a couple of reasons:

1. It’s not that cyclical, and patients will need organ donors regardless of the business cycle.

2. It won’t be affected by any tariff policy as the large majority of its revenue is generated inside the US, and its costs shouldn’t be largely affected, either.

3. It’s a stock that is quite predictable and:

   1. It can easily go from super undervalued to a fintwit darling (as already seen not that long ago). These times of extreme depression and euphoria are perfect for investors who can manage their emotions.

   2. Notably, current flight data (a quite reliable indicator of near-term revenue) suggests a potential 20% beat for Q1. Retail anticipation ahead of earnings could trigger price appreciation, offering an opportunity to reduce pre-announcement exposure while maintaining at least a 12% allocation. I also held some short-term calls in my other account for a quick sentiment reversal play before earnings (they were sold in the middle of April and won’t be counted towards portfolio performance).

Nebius Group ($NBIS): 9.5%

Nebius builds full-stack infrastructure for AI, including large-scale GPU clusters, cloud platforms, and tools and services for developers. (It is an EU company!)

I won’t go into detail here because there is an excellent free, in-depth article posted by a fintwit analyst covering the company here.

Anterix ($ATEX): 9.4%

Anterix is in a spectrum special situation with high (2x+) short-term upside if it manages to execute on its strategic review, which was announced not long ago after interest from various parties to acquire the company.

The spectrum space is uniquely interesting, and I’m sure I will cover it in the future. In essence, due to the deregulation environment currently being created, M&A should pick up heavily and lead to some consolidation. I believe that Anterix could be a prime target for a buyout.

Final thoughts

All in all, I am focusing on interesting special situation plays that have a lot of room to run if tariff deals happen, but will be okay in any scenario. As of this post's release date, I have started minimally trimming my TMDX position and bought a large chunk of Pitney Bowes, making it my biggest holding. Nevertheless, I am highly bullish on Transmedics, which is still my second-largest position, and I see it as one of the highest upside ones.

Also, I am considering creating an automatic portfolio tracker so that my paid subscribers can see any portfolio changes I make in real time. If you can, please vote on whether you would want that. Thank you!

Disclaimer:

All content is provided for informational and educational purposes only and does not constitute investment advice. You are fully responsible for any decisions made after reading my materials. My analysis, which may contain errors, is based on public information such as SEC filings, press releases, interviews, and current events. Past performance does not guarantee future results.

My affiliates or I may hold positions in the securities discussed at the time of publication, and we are under no obligation to maintain them. Neither I nor my affiliates accept any liability for any direct or indirect loss arising from the use of this information. Nothing herein is an offer or solicitation to buy or sell any security.

Today’s pitch is quite simple. A recently IPO’d ~$90M micro-cap company finalized a highly accretive acquisition at the end of last quarter for around 5.25x P/E that will significantly improve its earnings profile starting with subsequent earnings. Additionally, the company is profitable and now has 16.9 million in cash, likely to be used at least partly for other acquisitions, which I suspect could be announced as soon as 2025. I see a 150-300% upside over the next 28 months.

As some may have guessed, I am talking about Legacy Education, one of my four 2025 picks (the others are $GRRR, $TMDX, and $HASH).

• Share price: $7.60

• Market cap: $94M

• LTM revenue: $52.72M

• LTM income: $6.3M

• Debt: $1.09M

• Cash and equivalents: $16.87M

• Average daily volume: 96,250

• Shares held by insiders: 32.17%

Legacy Education doesn’t provide any concrete guidance or projections. It has been floating around Fintwit for a few months but has yet to reach any level of excitement. I believe this to be an excellent opportunity to buy a company that trades at ~15 P/E while growing its revenue and profits by 30% annually, with more growth ahead.

Business Model

Legacy Education delivers concise, career-focused educational programs, primarily targeting the healthcare sector. The company offers 47 certificate and degree programs in fields such as nursing, medical technology, dental assisting, and business administration. The company does a great job by attaching itself to fast-growing industries projected to compound at an annual growth rate (CAGR) of 16% through 2030.

Operating four colleges across six campuses in California, Legacy Education generates approximately 92% of its revenue from tuition and laboratory fees. The remainder is derived from books, registration, and miscellaneous charges.

Analyst models typically emphasize organic growth, yet few account for the financial benefits stemming from the ongoing acquisition of smaller institutions and the resultant synergies. I estimate that the recent acquisition of Contra Costa Medical Career College (CCMCC), along with potential future transactions, is undervalued in current projections.

Management & History

LeeAnn Rohmann founded Legacy Education in 2009 and continues to serve as the CEO and Chairman up to this day. She owns 7.2% of the company. That, to my knowledge, comprises the majority of her net worth.

For years, the company has operated with little leverage, acquiring four small colleges one by one and implementing them into its system.

High-demand programs and relevant solutions will continue to drive small to medium long-term growth

All of Legacy Education’s programs are created/developed to solve these problems:

• Low ROI on the high tuition for most colleges → Legacy Education provides high ROI on their degrees by providing affordable education in high-demand and high-paying jobs;

• High risk of not getting a job placement straight out of university → all of the degrees LGCY offers are for high-demand jobs with a low supply of potential employees (see the visual below);

• Most of the time spent on studying is wasted on non-relevant information to a specific occupation and thus takes quite long (7+ years) → Legacy Education offers short (sometimes less than a year) education that is specialized to a specific vocation;

By solving relevant problems, Legacy Education organically attracts more and more students to the same colleges per year. This is proven by the building of multiple campuses for the same colleges to meet the influx of additional students and still not having enough space.

This quarter, Contra Costa Medical Career College (CCMCC) acquisition will drive further financial growth.

At the end of last quarter, the CCMCC acquisition was finally closed, adding around 500 students (now around 3000). It additionally added 14 programs to the company's portfolio (not much overlap).

After some calculations, I estimate that CCMCC will add at least $7.6-8M in revenue and $1.44M in income to $LGCY’s financials in the 2025 calendar year. This is significant as the company's current LTM income is around $6.3M. This would also mean the acquisition was made at around 0.95-1.04x fw P/S and 5.6x fw P/E, as the total purchase price was $8M ($7M of it — cash). This doesn’t even include any synergies that will be made during the next couple of quarters.

Significant cash position with a robust potential acquisitions pipeline.

A big part of my thesis revolves around the management continuing to have accretive acquisitions. There are a couple of reasons why I believe this to be likely:

1. The management has discussed this repeatedly with optimism:

   From the 2025 Q1 call (fiscal year starts in June):

   Q: I mean do you have the staff and the people to do another acquisition right away after Contra Costa? Do you have to wait 3 to 6 months?

   A: I believe with our current staff, we're poised to be able to support a short-term future acquisition, but we want to make sure that it would be good for both the business and really the future of the company to be able to support it.

   Q: <…> talk about M&A a bit as far as what the landscape looks like out there and hopefully, what you're able to achieve over the coming quarters?

   A: Well, we definitely believe that just the sector switch and the change, there's a lot of opportunity that is before us, both inside our current California footprint and outside of that footprint. We have been in some initial and early discussions in both of those areas within California and outside of California.

   So we believe that there's going to be a significant opportunity for us to be able to capitalize off of that. I want to make sure that we really execute well on the current acquisition that we have upcoming and getting that just executed well as we continue to seek the additional opportunities that may be available to us.

   From the 2025 Q2 call:

   Q: Could you talk a little bit about M&A, <..> about their pricing, kind of the mental state of some of the buyers and sellers <...>?

   A: Absolutely. The M&A continues to be a strong pipeline as you look to see a lot of the single-owner institutions, mom-and-pops that have been in the business for quite some time. There are many schools out there that are quality institutions, they're accretive, and they are looking for opportunities in order for them to get out. So, our pipeline continues to build. And we are really just assessing in terms of our strategic strategies to want to move outside of California and into the right programs that are critical in need and that we believe that our model can easily roll right into.

   Q: With the new administration in November, did you see a change in the pipeline?

   A: We actually have seen a change in terms of — I think that some people that were sitting on the fence with regard to their decision to stay in or to get out is that they see it as more of an opportunistic time that they can get out. And we have built — we've increased our pipeline since that time.

2. Legacy Education has over $16.8M in cash and very little debt. I believe its free cash flow should completely cover most ongoing liabilities. Moreover, it’s not worth it for them to invest in inside operations when there are multiple times higher ROI opportunities very close by. I don’t think that with LGCY's M&A experience and returns (assuming they have similar comps across acquisitions), it would seek other options to employ that cash.

Nevertheless, let’s assume that after paying down some debt and current liabilities, we will be left with around $10M for acquisitions. Assuming they can complete one more acquisition in the current calendar year at comparable comps to the CCMCC one (IMO, definitely probable), this would lead to an additional $1.81M in net income.

Combining current and potential acquisitions, the inorganic growth alone would be around 35-40% for the next 12 months. This doesn’t include synergies and relatively high short-term organic growth.

Analyst income projections for the current year are around 10% (see below for a longer-period picture). The analysts' models likely mainly involve organic growth, so investors should get a “free lunch“ in the next quarter or two.

Risks

1. They operate in an unpopular industry. The scalability of colleges is quite limited, even though a lot of Legacy Education’s learning happens online, and they can also build additional campuses for the same college.

   The classes are still primarily in-person, and there is a cap on revenue & expenses per student. That means that most of Legacy’s growth will have to happen inorganically. I suspect this investment will deliver excellent returns with the re-rate in the next 24 months and then start slowing down due to the business's acquisition-driven nature. However, I could be wrong if they continue exponentially finding amazing gems at cheap valuations.

   From the December IR presentation (prior to CCMCC acquisition):

   ~26% of current enrollment is due to successful M&A activities ( While not a significant number at the moment, I expect this to rise rapidly)

2. 90/10 rule. If an institution gets more than 90% of its revenue from federal student aid (Title IV, e.g., Pell Grants and federal loans), it risks breaching the 90/10 rule.

   The CFO has said, “I don’t lose sleep over 90/10,” and rightly so. Institutions like LGCY usually have entire teams that model their revenue sources and ensure the rule is not breached. As you will see in the table below, there have been instances where the limit was almost reached, but there are financial measures in place to never exceed the limit. If you want more info on them — message me directly. Nevertheless, if federal aid revenue went over 90% for two consecutive years (improbable), it would lose all aid revenue for the next two years.

   

3. California wildfires. One (relatively small) of Legacy Education’s campuses was three blocks away from the final containment of the Los Angeles fire. As it currently has only six campuses (all in California), losing one would lead to a temporary revenue loss. I think online classes, insurance, and other campuses would minimize that loss, but the market could still react strongly (on the fire closing in the news, the stock dropped 15%).

Valuation & target price

If you trust my projections, you will probably agree that 15x P/E is quite forgiving for a business growing this fast. I’m not saying this is the next Constellation Software, but you would be buying a company with a significant pipeline of businesses to buy for 5-6x P/E (prior to any synergies, of which there are plenty).

Below are my napkin math projections for potential IRRs in different scenarios. You can try to do the inputs yourself, but I get a weighted 39% annual return for the next 3 years (2.73x). With some fintwit love, I think it can get to that much quicker, but I like to stay optimistically conservative.

Final thoughts

$LGCY seems to be consolidating after a 95% runup in the past 6 months since its IPO. If you decide to build a position, I recommend buying 50% now and then 50% before earnings to maximize your potential IRR.

Legacy Education is my second-largest position at 9% of my portfolio.

Disclaimer:

All content is provided for informational and educational purposes only and does not constitute investment advice. You are fully responsible for any decisions made after reading my materials. My analysis, which may contain errors, is based on public information such as SEC filings, press releases, interviews, and current events. Past performance does not guarantee future results.

My affiliates or I may hold positions in the securities discussed at the time of publication, and we are under no obligation to maintain them. Neither I nor my affiliates accept any liability for any direct or indirect loss arising from the use of this information. Nothing herein is an offer or solicitation to buy or sell any security.

Most quality/value investors nowadays seem to try to copy today’s Buffet (or any other kind of prominent hedge fund investor, i.e. Klarman, Rochon, Dalio, etc.) to achieve outstanding results. Truth be told, I am/was no exception, and I believe that this investing style is outstanding for most investors who wish to outperform the market over the long term by 2-4%.

Obviously, 11-14% p.a. is an incredible goal that most people would dream of achieving, but:

a. My primary goal with investing at a very young age is to learn and make mistakes;

b. I believe that with strong conviction, deep research and a bit of luck, great(er) outperformance can happen.

Most investors mentioned above would probably invest in very small companies if their AUM allowed it (high AUM—hard to navigate in a low-volume market). An obvious example is the famous Buffett quote:

The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.

I’m no Buffett, nor do I expect such results, but I believe that achieving an uncorrelated 20% IRR with less downside risk is possible. With the right strategy… Therefore, I am announcing a slight shift in my upcoming content/portfolio moves.

My new strategy will consist of 3ish kinds of plays:

1.     Special situations (litigations, liquidations, spin-offs, restructurings, etc.);

2.     Inflections (mostly microcaps inflecting to profitability but also some hidden catalyst plays);

3.     Quality micro/small-caps with high potential, great capital allocation and superb financials.

As we wander into small companies, we will sometimes become investors in firms that don’t even have an institutional following or big investors. Having smaller portfolios will benefit us and, hopefully, add alpha.

My content will have a slight shift, too:

1.  More concise, dense writeups (no more checklists of what to write about or information not crucial to the investing thesis). This will allow me more time to focus on research and better results versus covering every detail of an investment;

2. Less educational content and more investment ideas. I believe that accounts like “Compounding Quality”, “The Dutch Investors”, and “Invest In Quality“ are great for newish investors and can provide a high volume of superb learning materials for investors better than I can.

3.  I will post more informally/frequently on X and then have the longer writeups here. For complete coverage of the companies mentioned from now on, I recommend you follow me on X, too.

I will additionally continue to cover new compounders for my existing subscribers as I discover them occasionally.

I began testing the new strategy in September, and the initial results (with proof at the end of this post) are promising. However, looking at a 60-day performance is not my goal, nor can it be trusted.

My new portfolio consists of 18 positions. I will reveal them when/if they reach a good entry point in the coming months.

Important notice: I will keep and add to my long-term compounders portfolio that I have covered extensively here since they work best when left alone. I don’t know if my new strategy will outperform the old one, but it is worth trying.

I am excited to embark on this new journey, and I genuinely believe it can bring value to you, my readers.

See you soon!

Returns proof:

Blue line — new portfolio

Red line — S&P Technology Index

Yellow line — S&P 500

Green line — Small Cap Index

Statistics proof:

Returns distribution:

The last article I wrote about Shelly Group was one of the most popular and well-received writeups I created. Furthermore, the company's recent trajectory has made me even more excited about its future.

A good friend of mine from met with Wolfgang Kirsch, Shelly's co-CEO after he read my article. He was kind enough to share the notes with me. I will briefly go over what I haven’t written about yet.

Lack of Free Cash Flow

When discussing FCF, or, to be exact, the lack of it even with very high net income profitability, Wolfgang passionately spoke about the need to be aggressive and as fast as possible to eliminate and dominate the competition. Shelly's sector is very, very, very competitive, so that is a bonus in my book.

A question that came to my mind here, though, is why they are paying out dividends. Can't they find opportunities to invest that money for a better return? If any of my readers knows the answer, please comment; I would love to discuss it!

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Market size potential

Currently, 70-80% of Shelly’s customers are DIY enthusiasts, but the real opportunity lies in the professional installer market, which makes up 80% of the total market. If Shelly can effectively shift into this sector, we could see significant growth that the market hasn’t yet priced in. However, failure to penetrate this market could lead to stagnation.

Mistrust by the market

Since Shelly is a Bulgarian company, Wolfgang believes that the market assumes its numbers are too good to be accurate, so it trades at a “discount.”

Seeing the recent meteoric stock price rise, I'm unsure if I fully agree. Still, I believe that if we saw the same company in the USA, its valuation would be slightly different.

That’s why they are taking so many steps to increase investor confidence. They switched to Deloitte as an auditor, scheduled even more investor conferences, and continued using the best practices to increase Shelly’s visibility.

New catalysts

It’s interesting because before hearing about it from the CEO, I didn’t think about it too much.

Shelly has a market cap of only around $620 million. That means most sizable funds can’t invest in it no matter how much they like it. The low float caused by founders not wanting to divest doesn’t help either.

Wolfgang believes that as they cross the $1bn mark, institutional investors will start noticing Shelly and will be able to invest in it. When the stock reaches >€200-250 million free float, it should be included in the SDAX index, increasing investor interest further.

”In the medium term, the Shelly Group aims to meet the critical qualification criterion of market capitalization of freely tradable shares for inclusion in the SDAX." - Wolfgang.

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More China risk than I initially thought

This didn’t come from Wolfgang, but some more digging.

Even though I talked about how their chip and factory operations outside of China add diversification, that doesn’t mean they don’t have any.

I discovered that they make the chip that powers many of their devices with TSMC , but almost all the metals needed for that specific chip are primarily found in China.

If sanctions were to increase or China would get into a war with Taiwan, even outside factories wouldn’t help that much, as they would need to change their chip core composition.

High scale R&D

Shelly does all of the research and development in-house in Sofia, Bulgaria. This allows them to save A LOT of money on people and hire more to increase capabilities. Sofia is becoming a real tech hub, with many companies outsourcing their research talent there.

According to him, the quality of talent here is very high, and salaries are 1/3 of those of other countries. Wolfgang believes this makes them more efficient and intends to keep these operations there.

Shelly is a startup in an old company “shell” (pun intended)

All of my readers know that Shelly is a 20-year-old company that is very quick to adapt to new changes, and that is why we still regard it as a startup. We all know how fast they can change, but Wolfgang gave this example to show that their product development is just as fast.

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“At Shelly, the time it takes for a product to go from an idea to a launch is 6 months; at Schneider (one of their biggest competitors), an idea to a PowerPoint formal pitch to management takes 6 months“.

This could be an exaggeration, but from what I’ve seen with companies this size, that may very well be close to the truth.

As long as Shelly's startup culture survives (Wolfgang is a big cultivator of it), it can better overcome most market struggles than the competition.

On USA expansion

As mentioned in the first quarter management call, Shelly is actively searching for acquisition opportunities to expand in the United States. However, they are cautious about their capital allocation, so that takes time.

Wolfgang also mentioned that “Europe is driven by efficiency and regulations, the United States—security.” Both are very different and large markets that Shelly can take with time.

Sale of Shelly Group

They are not currently considering selling a larger portion of the company to strategic or other investors (especially competitors). They believe the company can easily be at least 5x larger in the coming years and thus don’t want to sell anything now.

After 4-5 years, Wolfgang hinted that they would be ready for a sale. As they have a very close connection and compatibility with Amazon, they could be one of the buyers with a lot of cash for the acquisition.

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On Vodafone and African telecom deals

Most industry companies (especially in Africa) need to measure their energy consumption and thus are becoming increasingly aware of Shelly. Wolfgang believes that this could be a massive long-term opportunity in the business space, and personally, I think that diversifying across customer types could be very beneficial to Shelly, too!

That’s it for today! As always, thank you for your support, and I look forward to hearing from you! Be sure to check out , the quality of research there is amazing!

The information provided in this newsletter is for informational purposes only and should not be considered financial advice. Always conduct your own research and consult with a qualified financial advisor before making any investment decisions. The opinions expressed are solely my own and do not constitute an endorsement or recommendation of any specific company, security, or investment strategy. I am not responsible for any investment decisions made based on the information provided in this newsletter.

You probably don’t know this, but I am a big Bryan Johnson fan. I believe that humans don’t do nearly enough to try to prolong their lives.

Logically, I also strongly support the development of new drugs that could solve the worst diseases of today’s world. Now, investing directly in the research and development of new drugs is a risky, expensive and usually perilous process for investors (only ≈10% of biotech companies survive and it costs around $2Bn to go through the process of launching a drug).

The only way to guarantee making money? Helping the companies go through it without taking on the risk.

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The main thing to remember about my strategy is that WINNERS KEEP WINNING… As long as they don’t get complacent…

Let me remind you of my strategy:

• Buy wonderful companies that have clear catalysts to rise in the coming years;

• Track record and predictability decide the weighing;

• I want to be lazy, meaning I always prioritize adding to existing positions over getting new ones if the new stocks do not increase the average company quality of the portfolio.

• I treat businesses like they were my family’s business. Would I be comfortable having this company as 100% of my net worth and being unable to sell for at least 20 years? If the answer is yes, I look further.

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Let’s dive in my new investments and smaller bets:

5. Dino Polska (10.04%)

Overview

Ticker: DNP.WA

5 Yr. revenue growth: 34.3% CAGR

5 Yr. EPS growth: 35% CAGR

2 Yr fw. revenue growth: 19.3% CAGR

2 Yr. fw. EPS growth: 25.1% CAGR

ROE: 30.6%

ROCE: 28.6%

ROIC: 17.7%

Dino Polska S.A., together with its subsidiaries, operates a chain of mid-sized grocery supermarkets under the Dino name in Poland that focuses on capturing the rural population by winning on proximity, price, and for investors - efficiency.

Like most companies I own, Dino is a fast-growing, efficient, and founder-led company.

Dino's share price has recently weakened due to lowered investor expectations and a decrease in the speed of store count scaling.

Valuation

Trailing P/E: 26.76

Forward P/E: 21.41

Forward P/FCF: 41.35

Thesis for outperformance taken from Fundasy’s Dino recent overview that I think does a much better job than I would have:

I think with the following assumptions, it becomes very easy to underwrite Dino Polska for a good long-term investment at today’s 4% earnings yield:

1. Conservative topline growth of 17.5%

2. Net Income margins of 6.50% from today’s 5.48%

3. A High PE Multiple at a 5% yield (20 PE) from today’s 25.8 PE, contributed by likely either (1) International Expansion or (2) Capital return to shareholders

4. ForEx: With a conservative annual 1% loss in PLN value, resulting in 90% of total’s exchange value

5. UNKNOWN: The kicker for returns in the future will be what the company does with the cash on the Balance Sheet. Even without this though, the napkin math returns looks as follows:

[ (1.175^10)*(6.50/5.48)*(20/25.8)*(90%) ] ^ .1 = 1.156 (15.6% Annualized CAGR)

6. Mercado Libre (7.9%)

Overview

Ticker:

5 Yr. revenue growth: 57.9%

5 Yr. EPS growth: 124.1%

2 Yr fw. revenue growth: 25.7%

2 Yr. fw. EPS growth: 40.5%

ROE: 14.2%

ROCE: 14%

ROIC: 1.7%

Simply put, Mercado Libre is the Amazon of South America which additionally provides financial, advertisement, logistics, and other services. It is truly an emerging markets behemoth with an $81Bn+ market cap.

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Valuation

Trailing P/E: 26.7

Forward P/E: 21.4

Forward P/FCF: 41.1

Thesis for outperformance

A monopoly encompassing many industries that will and is riding the South America growth and will continue to do so even more in the future.

7. Teqnion (4.7%)

Overview

Ticker: TEQ.ST

5 Yr. revenue growth: 34.7%

5 Yr. EPS growth: 19.09%

2 Yr fw. revenue growth (management’s goal): 15%+

2 Yr. fw. EPS growth (management’s goal): 15%+

ROE: 23.35%

ROCE: 17.2%

ROIC: 13%

Teqnion is a Swedish industrial group that operates through independent subsidiaries that it acquires. Through these companies, Teqnion offers leading products in a diverse array of industries. In summary, as the founders say, they are trying to build a mini Berkshire Hathaway.

Teqnion is a company that is overvalued but still very promising. The reason for that is the founders. They are smart, young, and very, very hungry.

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To be honest with you, I believe this investment could definitely stagnate at least for some time or be a multi-bagger. I’m willing to bet.

Valuation

Trailing P/E: 30.5

Forward P/E: 25-27

Forward P/FCF: 34-35

Thesis for outperformance

• Great management team

• High growth with cyclical bets recovering

• Very long runway

8. Dream International (3%)

Overview

Ticker: 1126.HK

5 Yr. revenue growth: 9.1%

5 Yr. EPS growth: 20.1%

2 Yr fw. revenue growth: -

2 Yr. fw. EPS growth: 52.3%

ROE: 17.25%

ROCE: 20.5%

ROIC: 18.6%

Dividend: 11.34%

I was genuinely trying to decide whether to include this company I found through DavidOrr on X. It is nowhere close to my strategy of buying long-term winners and holding them for even longer. It’s an Asian company with most of its operations in Vietnam that essentially has factories that manufacture toys.

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In essence, if it was not listed in HK and didn’t operate in China, it would have a P/E of 20+ and much more recognition but most investors are staying away purely for the geographical location. Otherwise, the founder has 70%+ insider ownership, and the efficiency, profitability, growth, and dividend are all great signs of the health of the company. I guess it depends on each individual to weigh the risk of China vs the qualities that the company possesses.

Valuation

Trailing P/E: 4.04

Forward P/E: 5

Forward P/FCF: 2.5-3

Thesis for outperformance

It is essentially a hedge fund-type play that manufacturing will continue to leave China and go to countries like Vietnam, and the growth, coupled with multiple expansions, will deliver 40%+ annual returns.

Thank you once again! As always, if you have any feedback, I love receiving tips and opinions to improve my writing! See you soon.

Let me remind you of my strategy:

• Buy wonderful companies that have clear catalysts to rise in the coming years;

• Track record and predictability decide the weighing;

• I want to be lazy, meaning I always prioritize adding to existing positions over getting new ones if the new stocks do not increase the average company quality of the portfolio.

• I treat businesses like they were my family’s business. Would I be comfortable having this company as 100% of my net worth and being unable to sell for at least 20 years? If the answer is yes, I look further.

Now, let’s discuss the companies I own and the reasons behind them.

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1. Constellation Software (32%)

Overview:

Ticker:

10 Yr. revenue growth: 20.68% CAGR

10 Yr. EPS growth: 20.04% CAGR

2 Yr fw. revenue growth: 20.51%

2 Yr. fw. EPS growth: 54.46%

ROE: 38.56%

ROCE: 29.9%

ROIC: 9.57%

Yes, you read that right. A third of my equities portfolio (and 25% of my net worth) is in Constellation Software. Why?

It has not only proved to be a high-growth compounder but also a resilient market-leading company in significant downturns.

This performance and sturdiness are not a coincidence. Constellation Software owns more than 700 companies in over 100 different markets worldwide. It’s strategy? Buying niche vertical software businesses with high margins and domination in the specific industry.

Even though scaling has become a slight problem, CSU has shown an exceptional ability to adapt and overcome this hurdle.

Valuation

Trailing P/E: 102.7

Forward P/E: 32.8

Forward P/FCF: 24.3 (more than 4% yield!)

Thesis for outperformance

This is probably the only company where I am not too worried about where it goes from here. That is the result of having complete trust in the company’s mystified genius capital allocator and CEO - Mark Leonard. CSU doesn’t need a catalyst because they ARE their catalyst. Continued growth and quality acquisitions will be more than enough to provide constant outperformance and stability in my portfolio.

To end Constellation talk, I will quote my mentor’s answer to my question about trimming CSU: “You could trim some profits, but in 2-3 years, I suspect you will hit your head on the wall if you check the price.“

2. Kinsale Capital Group (18.41%)

Overview:

Ticker:

5 Yr. revenue growth: 40.44% CAGR

5 Yr. EPS growth: 48.57% CAGR

2 Yr fw. revenue growth: 23.78%

2 Yr. fw. EPS growth: 15%

ROE: 23%

ROCE: 25.42%

ROIC: 7.38% (not the right metric to judge KNSL’s performance, tbh)

Kinsale Capital Group is a specialty property/casualty insurance company that provides E&S (excess&surplus) insurance products in the United States. It markets and sells them in all 50 states. Through its extensive and market-leading processes, Kinsale manages to shift the “High risk - high reward“ balance in its favour.

This is another big part of my net worth that only increased after Kinsale experienced a 30%+ drop in recent months due to worsening market expectations and a weakened outlook.

I won’t write much in this post because you can find my recent detailed deep dive here, but to sum it up, it is one of the most efficient, profitable, and fast-growing insurance companies that continues to outperform the market.

Valuation

Trailing P/E: 25.7

Forward P/E: 25

Thesis for outperformance

• I believe that is currently pretty attractively priced at almost 25 forward P/E, compared to a median of 38 with a still relatively high projected growth.

  

• I expect the efficiency to continue and for Kinsale to remain the growth leader even in a worse market, and continue taking market share, significantly increasing from the <2% it has today.

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3. Evolution AB (12.6%)

Overview

Ticker: $EVO.ST

5 Yr. revenue growth: 46.9% CAGR

5 Yr. EPS growth: 56.9% CAGR

2 Yr fw. revenue growth: 17.1% CAGR

2 Yr. fw. EPS growth: 13.1% CAGR

ROE: 39.75%

ROCE: 39.17%

ROIC: 42.27%

Net margin (just had to include this :D): 58.2%🤯

Evolution AB is a Swedish company that develops, produces, markets, and licenses online casino systems to gaming operators in Europe, Asia, North America, Latin America, and internationally.

Many people criticize me for holding this “sin“ stock and risking so much in a company with regulatory risks. The way I think about it, though, is that Evolution provides entertainment, and people pay for having fun. I believe this is a fair trade-off, and most people will never see it as investing of sorts.

Now, let’s get to the investment part.

The stock was on a tear a couple of years ago, and even though the company has been steadily increasing all of its metrics, it has just been playing catch-up to the huge price move we saw. In my opinion, this consolidation serves as a great position-building point at a very attractive valuation and growth prospects.

Valuation

Trailing P/E: 19.5

Forward P/E: 17.4

Forward P/FCF: 17.5

Thesis for outperformance

Evolution is a master of efficiency and profitability, consistently growing at all times with very low CAPEX requirements. I believe that this consolidation is nearing an end, and multiples should start following growth soon. As business and its fundamentals grow, I have no reason to worry.

If you want to read a great Evolution overview, I recommend Fundasy’s write-up here.

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4. Shelly Group (11.35%)

Overview

Ticker:

5 Yr. revenue growth: 27.59% CAGR

5 Yr. EPS growth: 48.06% CAGR

2 Yr fw. revenue growth: 41.6% CAGR

2 Yr. fw. EPS growth: 34.7% CAGR

ROE: 27.5%

ROCE: 27.1%

ROIC: 33.2%

Shelly Group is a Bulgarian company that designs, manufactures, and distributes IoT (Internet of Things) products in Europe and the United States. It is probably my highest conviction, though risky, investment. If the past and future growth of EPS didn’t pique your interest, Shelly has returned over 30 times over the past 5 years.

The company has exceptional management, growth, and profitability metrics. I believe it is fairly valued for the quality it provides.

Shelly started as a telecommunications business that evolved into tech, IoT, and now - the cloud. The fast iteration shown by the management makes me confident that the company will be able to face any hurdle that comes its way in this fast-changing industry.

Valuation

Trailing P/E: 37

Forward P/E: 29

Forward P/FCF: 639 (doesn’t say much as they reinvested everything, got more inventory, manufacturing space, etc.)

Thesis for outperformance

Shelly is probably the highest-growing company in my portfolio. It is currently continuing its expansion into Europe, pumping out products like never before, and executing in a very efficient and profitable way. I expect to get at least 20%, if not more, annual returns for the next five years.

You can check out a full deep dive I wrote on Shelly here.

That’s it for today. I will reveal the other half of my positions (plus a new buy!) next week for the free subscribers, but if you want to get it today, you can subscribe to the paid version.

Both ways, I am grateful to have you as a reader and am committed to staying free to read for at least one year.

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Overview

Ticker: SLYG.F (original listing in Bulgaria)

Market cap: 635M Eur

Price: 35 Eur

Year founded: 2003 (IPO- 2016)

Founder/CEO: Dimitar Dimitrov

CAGR since IPO: 69.8% (5Yr CAGR - 109%)

Shelly Group is a Bulgarian company that designs, manufactures, and distributes IoT (Internet of Things) products in Europe and the United States. The company offers smart home devices that help save energy and also a branch of products that monitor children, pets, and automobiles. Additionally, they have launched a cloud platform that can connect all smart home devices to create a coherent system of gadgets.

Product

New product launches are one of Shelly Group’s biggest and most significant growth drivers. In 2023, Shelly launched 21 new products and now has over 70 in total. Now, hear this: in 2024, they have already launched 15 new products and are planning to launch/update an additional 25-45 this year.

Shelly’s products are around 50% cheaper and very easy to install compared to their competition, initially attracting more price-conscious DYI customers. However, I believe this is only a minuscule part of what Shelly could be.

Cost example: I searched up a basic “Schneider” (one of the biggest competitors) smart relay that is similar to Shelly’s and this is what I found:

Vs most expensive Shelly Product I found (you can obviously spot that the configuration is more simple which is why it’s cheaper but that’s what beginners need!):

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I also managed to find cheaper alternatives like Bosch smart relay but it is worse than the normal Shelly relay and still 2x more expensive.

These are the segments that Shelly mainly operates in:

1. Home Efficiency

   This is probably the company's most important product group. They manufacture smart relays, shown below, which monitor the energy you consume in your house and feed data to the app mentioned below to show visualizations of the results. This allows you to see where you consume the most energy, and how you can optimise your electricity spend. I will talk about this later, but the main point is that as Europe becomes increasingly climate-conscious, new laws are being passed that require houses to be more energy-efficient. This is where Shelly can come in and help save money at a relatively low cost.

   

2. Smart-home

   The same devices that can help you track and optimize your consumption can be used for house automation (even when the internet is down) - shutters, roll-outs, lights, garage doors, climate, etc. For example: “Increase temperature to 23 degrees Celsius when outside temperature hits X” or “Open shutters when the clock hits 8 a.m” etc.

   One of the most interesting things about Shelly Group is its philosophy of making everything as open as possible. Their products are completely programmable, so it makes sense that their current clients are mostly DYI people who enjoy doing things themselves. More about that later on.

3. Cloud service

   Shelly Group has built a monthly fee (first recurring revenues) cloud service that allows it to connect all its products into one app and create detailed visualizations with data from each one. The app's user base has grown significantly by 573K last year and now has 1.25M users in total.

   The app has a free basic version and a premium one that costs 4 euros a month, which is not too much, so the price-oriented Shelly's customers would not use it, but also enough so the company can get a real margin boost from the product. The revenue from this segment is still insignificant but I believe that with time, it will scale enough so to provide a meaningful contribution (especially as they increase prices).

   

You can watch this video to understand Shelly’s relays a bit deeper or visit shellyuniversity.com to learn about what is even possible with Shelly’s products:

History

Shelly Group (initially Telacomm and then Allterco) was founded as a telecommunications business in 2003 by the still-running CEO Dimitar Dimitrov.

In 2013, management decided to venture into the IoT business by developing the first smart home system. In hindsight, it was an excellent move for them as the segment grew much more rapidly than their telecom business. Eventually, the old operations were divested in 2019 to focus on the Shelly brand.

Shelly Group was listed on the Bulgarian Stock Exchange in 2016, the Frankfurt Stock Exchange in 2021, and finally, in 2024 - XETRA. This shows a continuous focus on improving stock liquidity and recognition. Since the first listing, the stock has risen 50x!

The Industry

The worldwide smart home market is projected to grow by 12.3% annually until 2032, and the IoT - 15-20%.

Even though this rate alone is outstanding, Shelly Group has grown at triple this speed. I expect the outperformance to continue as it rolls out more products and expands worldwide.

The market is dominated by brands like Google, Amazon, and Siemens, but Shelly Group has managed to stay competitive by focusing on more niche products rather than the most sexy ones.

If you are wondering whether the potential market is big enough, you can relax because every single home in the world would benefit from Shelly’s products. The question is whether they will want to.

Regulatory push to make homes more efficient

More than 2/3 of European houses are not energy efficient and require efficiency tracking. The European Union is already releasing more and more regulations regarding target efficiency for individual homes, and this is where Shelly Group can come in to save the day/become a target budget product.

How does Shelly Group stack up in this highly competitive market?

Management

One of the things I love most about about Shelly is its management team, so let’s start with that.

Group CEO and founder Dimitar Dimitrov, together with Svetlin Todorov (co-founder and head of USA operations), own more than 64% of the company.

The good thing is that their interests are obviously very much aligned with the shareholders, but on the other hand, it reduces liquidity. Management has hinted that, if needed, they would sell a very small stake but only as a last resort - a very good sign for the shareholders that the executives have this much conviction in the company.

Interestingly, a third person—Wolfgang Kirsch—joined the Shelly Group in 2021. Previously, he managed the expansion of a leading European consumer electronics brand, which shows that he has the experience needed to make Shelly a REAL global company.

He is listed as a co-CEO and has been crucial in Shelly's expansion to Europe, now its fastest-growing and biggest market. Unfortunately, he doesn’t hold that many shares in the company, but I hope that with time, he will be able to build up a position.

My takeaways about the team:

1. Fast iteration.

   During chip shortages, the team quickly modified its products to fit other chips too, which led to continued normal operations. Afterward, they released their own chip so that this problem would never happen again (+ to improve the product performance).

2. Forward-thinking

   After going through quarterly calls, I noticed one thing—they always provide solutions and address problems that might arise in the future. For example, they have already talked about how they plan to move production to Vietnam and use their acquired company's factory in Italy in case political tensions with China worsen and they cannot continue their production there. This is crucial in this super fast-changing industry.

3. Careful and disciplined capital allocation

   To date, we have seen normal (not great, but ok) dilution and very careful capital allocation. Shelly has almost no debt and has been expanding through word-of-mouth without spending a fortune on marketing (marketing expenses are only 4.5% of revenue). Other selling expenses are also fine (same SG&A margin as Amazon has now while being at a much lower scale and growing at very high double digits). High expense increases are due to new sales teams implemented in all of Europe. This is an investment that will show reaped results in years to come.

   

4. Overdelivering

   A typical “problem” with this company is that they always have to raise their targets because they usually achieve estimates way earlier than anticipated. The CEOs speak very straightforwardly, don’t try to overhype or underplay the company's trajectory, and seem knowledgeable. I would highly recommend watching some quarterly calls.

   It has also been mentioned by the CEO that even though they put out already pretty high estimates for the market, the internal targets (and bonuses based on them) are even higher.

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Financials/metrics

Shelly Group is not only a fast grower but also a very efficient company. This is reflected in their financials:

Margins:

Gross margin: 57%

Operating margin: 26.4%

Net margin: 23%

They manage to keep margins high even by having prices that are 50% lower than the competition!

Efficiency (5Yr Avg):

ROA: 22% ✔️

ROE: 26.5% ✔️

ROIC: 31.4% ✔️

Balance sheet:

Total assets: 128M BGN (66M Eur)

Total liabilities: 18M BGN (9.51M Eur)

Current assets: 108.5M BGN (55.5M Eur)

Current liabilities: 16.4M BGN (8.4M Eur)

Interest coverage ratio: 168 ✔️

As mentioned before, the management is really careful with the company’s capital. Even though this provides much-needed protection against downturns, I would like to see them start taking on at least a little debt to fuel more growth in the future.

Anyhow, the company is in great financial shape, and I believe this adds a real buffer against the risks mentioned below.

Opportunities

1. Very active product pipeline

   As mentioned, Shelly Group continues to pump out products at an unbelievable pace, further increasing their product selection and fueling revenue growth. This year, they are expected to increase their number of products by 50%! This will bring their total count to over 100, which will help take market share from the competition.

   Shelly has also developed its own Shelly chip and operating system, which increases the power and variety of functions.

2. Continued Europe expansion

   The company has started deploying individual sales teams in more EU countries, such as Italy, Poland, Turkey, and the Benelux region. Since they have already successfully expanded into Germany, I believe the same should be achievable in other countries.

   

3. Professional installers market push

   So far, most of Shelly Group’s customers are DYI aficionados who love programming their gadgets and functionality themselves. This leaves a vast untapped market for the company as professional installers could simultaneously make Shelly products the default choice for thousands of homes.

   To achieve this, it has already signed the first contracts for professional installers distribution in 2024 and has trained over 3000 professionals in the hope that they will choose Shelly Group as their preferred brand.

   

4. Marketing spend increase

   As I’ve noted, Shelly Group spends almost no money on marketing, and all of its sales so far have been driven by DYI and other communities, word of mouth, and Amazon recommendations. As these sources of growth get saturated, Shelly could start increasing their marketing spend, continuing the growth trajectory.

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Strengths

1. Driven management aligned with the shareholders

   From all the quarterly calls I've listened to, it is clear that management is driven to deliver shareholder value. Their 60%+ insider holding makes me very confident that, in the long term, they will do their best to not only safeguard the company but also substantially increase its value.

2. Product quality-cost ratio

   Shelly Group has mentioned that most of its products are priced around 50% below their competition, even while maintaining decent quality. This means they are and will continue to take market share from the competition. The company's products are also among the easiest to use, making them the best choice for newcomer buyers.

   

3. Robust balance sheet, margins, and overall financials

   The financial strength of Shelly Group is, in my opinion, excellent and will continue to be so as the management is scrupulous with taking on debt and additional expenses.

4. Programmable, open products

   Many companies fear making their products 100% compatible with other brands because they believe this could reduce their own brand sales. Shelly Group is open to all programming and compatibility with other brands. This creates a competitive advantage that further steals market share from the competition.

   

5. High customer satisfaction

   Most of the company’s products have 4-5 star reviews on Amazon. This is important as newcomers come to Amazon to search for their first products to retrofit their homes. As they buy the higher-rated Shelly products, it is likely they will stick with the same brand for ultimate comfort and, in the end - become lifelong customers who buy more products that Shelly releases.

6. Big community with high engagement

   Shelly Group has a huge online community. YouTube channels and Facebook groups alone provide free marketing for Shelly, which brings millions in revenue. These communities are where customers share tips and tricks, experiences with the products, and even suggestions to the management, which usually get replied to by the company.

   So far, this has been their main driver of growth. The fact that Facebook communities and YouTube videos built this multi-million dollar company alone shows how much the consumers love the product.

7. European brand

   Most customers could probably find Asian products in the same price range as Shelly’s. That said, the company positions itself as a European brand with higher quality and standards. Even the cloud service is completely based in Germany.

   

   

Risks/weaknesses

1. Manufacturing in China

   If Europe's relationship with China deteriorates further, there is a risk that their manufacturing could be disrupted or margins reduced. This would only be a short-term problem, though, as I mentioned, there is a plan built for this scenario.

2. Liquidity

   Management has discussed this extensively and tried to solve it by listing Shelly on XETRA, but that is only one piece of the puzzle. Low liquidity can cause huge swings, and investors must be ready to deal with them. Shelly Group has already risen 44% YTD and could definitely come down a bit like Kinsale did. I’m sure it will outperform in the long term but don't get in if you want to buy and hold for 6-12 months.

3. Competition

   Let's agree that smart home devices are not the most unique product. Even though Shelly Group stands out from the crowd, it is still possible that with the market becoming more attractive, competitors could spring up and reduce Shelly's growth.

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Valuation

As with every single high-growing small cap, the valuation is an important part, but not THE most important one.

Growth

Management has guided that they are striving to achieve >200M revenue and >50M EBIT in 2026. This would represent a CAGR of 40%+, and you have to remember that they set their internal rates even higher.

Past growth:

5Yr EPS growth: 54.68%

5Yr revenue growth: 26.7%

Their current valuation:

Trailing P/E: 37

Forward P/E: 29

PEG: 1.2-1.4

Overall, Shelly Group is not the cheapest company out there, but its projected growth, opportunities, and strengths make up for it.

Nevertheless, in companies like this, I'm sure there could be an opening to buy at a more attractive price, so I would suggest you get some shares now, but be prepared to buy 15-25% lower. I definitely will.

Calling my shot

In the next 3 years, assuming that Russia invading Europe is not a scenario, I believe Shelly's stock price will compound at 25-30% annually and then slow down to 15-20% annual returns. This is more than enough for me personally to justify a position.

Summary

In conclusion, Shelly Group is a high-grower emerging company that will continue to benefit from modernization, climate laws, and the increasing demand for easier home controls. The company could grow significantly from further European expansion and a potential yet difficult one in the USA. One thing I don’t love is the valuation. Even though high growth is predicted, volatile periods are always a possibility in low-float emerging stocks, especially in highly valued ones, so you have to account for that when deciding the size of the position. Nevertheless, one thing is clear - the management is more than capable of leading this great business, and I would not trust anyone else to do it.

As always, I am open to any comments about what I might have missed or your thoughts about the company. This analysis is for education only and by no means a recommendation to buy or sell. As I mentioned, I hold a sizable chunk of my portfolio in Shelly Group, and even though I tried to provide the whole picture, I believe that I will probably still be susceptible to investor bias; please keep that in mind!

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Thanks to all 135 subscribers who have joined us since the last post!

Terms to know:

Alpha → excess return (how much more do you make than the index)

Sharpe ratio → how much risk are you taking for x amount of returns?

Let me draw you into a tale from my early days of investing. Picture me at 12 years old, brimming with excitement as I made my first purchase in the stock market. With youthful enthusiasm, I allocated 10% of my modest portfolio to what seemed like a promising opportunity. I could practically taste the success, envisioning all the different types of Ice cream I could buy with the profits.

But then, the inevitable happened. The stock took a tumble, plunging 10% almost as soon as I'd dipped my toes into the market. Undeterred, I doubled down, convinced that this was a temporary setback. Yet, with each subsequent dip, my confidence disappeared, and my allocation size grew until that once-small portion of my portfolio that grew to 40%, was down 50%. Thinking it was about to reverse, I increased the stake to 55%.

Then… it halved again. All of this because I didn’t have a look at my portfolio from a bird’s eye view, and was just thinking of how much cash I would have after the stock returned to “the normal“. Stocks that are down 99% can still fall 99.9%. The thinking that it already fell a lot and should suddenly stop is poised to lose money.

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Asset classes

“Should I invest in bonds, crypto, hedge funds, etc.?” is a question I get often asked. I always answer - it depends.

As both an endowment CEO and a retail investor, I care for radically different portfolios with different risk appetites and capabilities. In my opinion, these are the questions you should think about when laying out your portfolio asset class allocation:

Risk-return expectations

When inquiring about investing opportunities, my dad always asks for only one thing “I have to make 8-10% guaranteed every. single. year.“ My answer is always, “Sadly, that’s not how the market works.”

If you want excellent (not decent) returns, you must be ready to go through periods of underperformance and doubt. Take a look at drawdowns over the years:

How would you feel if your best performer fell 85%? Would you be able to sleep at night?

The only way to get (almost) guaranteed money is to buy government bonds with 4-5% yields right now. If that satisfies you, it will be the easiest money you make. If you want 50% annual returns, that will mean investing in crypto + high volatility stocks. This also means that you can lose the entirety of your investment.

Portfolio size

This is pretty simple: if your portfolio is relatively small, you should not be trying to diversify it into every single asset class. You should 1) get your savings rate up and 2) allocate more to higher-risk assets. The only way diversifying $1000 in all asset classes makes sense is if you are trying to learn. If that is the case - diversify away.

I also like to compare my portfolio size with my monthly salary. If my risky investments caused my portfolio to fall 50%, how many months of my salary would I need to put back into it to compensate for the losses?

Now, if we are talking about $1’000’000 - $5’000’000 sized portfolios that provide for you and your family, more work has to be done to significantly reduce public market risk, volatility, and, unfortunately - some returns. It doesn’t mean not investing in riskier assets but controlling their weighting. In the end, it is not worth risking your family’s quality of life for 1-2% alpha.

You should also remember that many asset classes have monetary barriers to entry, sometimes exceeding millions: hedge funds, PE funds, VC funds, etc. These are the elite tools for portfolio management as they allow for more uncorrelated returns and sometimes - alpha.

One thing that is difficult to grasp when managing an endowment portfolio is that we are not looking for the best return opportunities. Students and the faculty rely on us to get scholarships, and they don’t care that the S&P500 dropped 5% that year. This means we can’t invest everything into growth stocks or even compounders that, in the long run, would perform best.

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Liquidity/time horizon

Most people think that they don’t care about liquidity, given that the returns are fine. Now let me give you an example from experience. In 2021, the Baltics region experienced 20%+ inflation, during which we started buying up private funds that bought forests. The strategy worked, and in 2022, we generated more than 30% returns in less than 6 months.

Next, inflation started normalizing, and the fund returned only 8% in 2023, thus underperforming the broad market. In Q1 of 2024, it returned 0.2%. My point is that everyone is OK with illiquidity as long as you see numbers go up. What about if they start going down every single quarter, and you can’t do anything?

Another point is that if you put all of your assets into illiquid funds, what happens if you need some cash to buy a house or get fired? You need to plan for this. For big portfolios, I suggest keeping around 8% cash for your living needs, 40-50% in less liquid assets, and 40%+ in equities. This will allow for the most flexibility.

Making the decision

In reality, most retail investors should just stick to investing in equities unless they have a portfolio responsible for covering their daily expenses.

Every single asset class requires specific knowledge to operate successfully, and you could only be shooting yourself in the foot by trying to cover all classes.

What I would recommend to people with bigger portfolios is just finding the right managers who specialize in specific asset classes that you would like to cover and allocating your money to them.

Concentration

We have all heard the saying, “Diversification is protection against ignorance“. It is almost true.

There are two main things in allocation concentration:

1. Time and skill

   Did you know that the legendary investor Peter Lynch, who returned more than 29% CAGR in his 13-year tenure, held more than 1’000 stocks at almost any time?

   He had both the time to fully commit to research AND the skill to pick the best stocks possible.

   

   No average retail investor could invest in a thousand different companies and still outperform the index by skill and not luck. Would you read through a thousand quarterly reports every three months? I definitely wouldn’t…

2. Return expectations

   There is straightforward logic in diversification. The more companies you own, the more your performance will trail the index. François Rochon has returned over 14.5% CAGR so far in his 30-year tenure at Giverny Capital. In 2006, he underperformed the market by 15% (3.5% vs 17%). To outperform in the long term, you have to be willing to underperform in the short term.

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When trying to understand what specific weighting you want to give a particular company in your portfolio, think about the following:

1. Expected returns (what is good for your investing style? How does it fit in your portfolio?)

2. Risk/reward (think overvalued stocks)

3. Stability (will you manage the volatility?)

4. How long will you hold the position (some stocks may take 5+ years to return to their intrinsic value after a big drop; will you be able to hold a sizable position in a company like this?)

For example, I hold only 9 positions in my portfolio, with my top 3 being 67% of my portfolio. This means I sometimes underperform and sometimes destroy the market. I am completely fine with that until my long-term returns are higher than the indices, and I definitely don’t care about my personal sharpe.

On the other hand, Rochon suggests holding 20 different companies with around a 5% weighting to diversify enough so one company can’t kill you but also not too much so individual companies can noticeably impact the performance.

Now, if we talk about the VJHS endowment, we have 29 positions, 7 of them being broad-market ETFs (total exposure to 1500+ companies). That is a radically different strategy that, as I mentioned, will provide for the school almost every single year. For example, in 2022, we returned 0.12%, and in 2023 - 8.4%. Not exactly mind-blowing numbers, but that’s not what we are looking for.

You have to decide for yourself what the right strategy is for you and be able to adapt it as you and your preferences change.

N.B.! Humans are emotional beings. If you try to switch your strategy every single year, you won’t succeed! You will sell your -60% growth stocks in a downturn, switch to healthcare and then sell the healthcare for a loss to go into high-tech that is already up 500%+ since you sold. Be very mindful of this.

I hope this was of some use to you and let me know if I should continue writing essays like this :) See you soon in my Lumine deep-dive!

Overview

Market cap: $10.48B

Price: 450$

Year founded: 2009 (IPO - 2016)

Founder/CEO: Michael Kehoe (more about him later on)

CAGR since IPO: 51.2%

Kinsale Capital Group is a specialty property/casualty insurance company, that provides E&S (excess&surplus) insurance products in the United States. It markets and sells them in all 50 states. Through its extensive and market-leading processes, Kinsale manages to shift the “High risk - high reward“ balance in its favor.

Segments and diversification

There is not much that can be said about Kinsales’ portfolio except that they practice great diversification across multiple industries.

Note: some of the biggest Kinsales’ clients are commercial properties and small businesses. As interest rates go down, the financial risks of these clients will decrease.

E&S industry

Simple description: if you cannot get proper insurance through traditional insurers because of a hard-to-value risk or too much uncertainty, you can go to the E&S insurance companies who will provide you insurance in return for higher premiums.

In traditional insurance businesses risk management is super important but in the E&S industry, it’s THE KEY THING. Those, who manage it well and have proper processes built in place, can reap the gains of the high-risk investments, and those, who stumble, get wiped out quickly.

The size of the E&S market compared to the property/casualty market as a whole is around 9% (Fitch source here) and is expected to grow at around 11-15% annually until 2027.

Logically, the E&S market has much higher growth rates (and obviously - decline rates in unfavorable markets).

The whole E&S sector experienced tremendous growth since 2018 after many more conservative insurance brokers started shedding more risky contracts as a response to more unpredictability in the USA climate and overall stability shift.

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How does Kinsale Capital stack up?

Kinsale Capital is an efficiency machine. That is achieved by:

• Making all underwriting decisions in-house (lots of insurance players outsource this part, destroying the incentives to perform as well, since bonuses are paid on a scale but not profitability basis + relying on others to manage your risk)

• Relying on quantitative in-house models to make the most important decisions

• Focus on smaller accounts eliminates much of the competition, increases profit margins, and diversifies the client portfolio. The high volume model is hard to implement by other insurance businesses without proper quant methods which increases Kinsales’ moat.

All this leads to one of the best combined ratios (money flowing out in the form of expenses, and losses) in the market. The lower, the better.

• Kinsale: 81.1%

• Property & Casualty market: 101.1%

• Excess & surplus market: 96%

They have achieved this while growing premiums at 40%+ annually.

Kinsales’ financials reflect this:

• Underwriting margin: 45.8%

• Net margin: 25.2% (most insurance brokers have 2-5% margins, making it more prone to collapse if a force-majeure happens)

• 2023 ROE: 33.6% (historical average: 20.3%)

• ROCE: 25.7%

• Revenues and net income:

Management

• Michael Kehoe has been the CEO since founding the firm in 2009.

• Prior he ran James River Insurance Company from 2002 to 2008.

• Interesting listen to see how he thinks about risk management. One of the more interesting points that he mentions is that they lose a couple of percent of potential profit per year just to manage their risk over the long horizon.

• Ownership stake: 4.1% ($480M which is almost all of his net worth).

• Both COO and CFO have been with the company since its founding.

Kinsale Capital investment portfolio

Portfolio value 2023: $2.95B

Do you know why Buffett was so successful? He managed to use Geicos’ free cash as leverage and delivered outsized returns as his investments outperformed the market.

These are the reasons why Kinsale does not do the same:

1. Risk management

   Geico has a much lower clientele risk profile which allows them to take on more risk through investing in equities. Kinsale focuses on already risky clientele and if they were to invest like Buffet (who had -50% drawdowns multiple times), that would just be foolish. Balance is necessary!

2. Investing skill

   Warren Buffet is one of the most successful investors in the world. I don’t think it would be smart of Kinsale to try to imitate him or even outperform the S&P 500 thus sticking to a balanced portfolio makes sense.

Note: I see many people thinking that as interest rates go down, Kinsales’ investing returns will disappear. That is not the whole picture.

Kinsale has a pretty balanced portfolio with treasuries + municipals being only a 7% position. Their corporate bonds and equities portfolio will be a little bit less sensitive to interest rates than people think. Of course, in a couple of years corps will not pay out as much but we can expect them to shift strategies with a changing macro climate.

How important is investing for Kinsale?

Their investment income has historically been between 2-9% of their total revenues, meaning that a couple percent lower investment income will not significantly impact the stock price.

Risks

1. Growth

   If you look at the chart of the stock price since the start of the year, you will see a wild ride. +25% on earnings, and -12% past month. This occurred because of an analyst downgrade due to assumptions that a soft market is coming and premium price increases across the industry will not grow as they have since 2018. There is nothing wrong with the company intrinsically but just means that we have to adjust expectations and thus - valuation.

2. Worsening climate predictability

   Long-term, climate-caused damage will become more severe, widespread, and unpredictable. This is not a problem for just Kinsale but for the whole insurance industry as well.

3. Black swans

   It is interesting that the CEO left James River Insurance during the 2008 financial crisis. Because of a comparably short company operating time, we cannot see how Kinsale performs during rare financial catastrophes. Even though the CEO always says that they are super disciplined when it comes to risk management, investors have to see how that works out during difficult times.

   Maybe it is possible to see the durability of Kinsale when looking at the 2020 crash but I still believe that we need a serious financial crisis to truly test Kinsale - hopefully, that won’t happen :)

4. AI

   Even though improving AI can help Kinsale improve its quantitative decision-making, it also helps to level the field for Kinsales’ competitors. This COULD result in a moat decrease.

5. Insurance brokers concentration

   In 2023, Kinsale distributed 58.5% of its gross written premiums through 5 of its 179 brokers. This gives the brokers leverage which is never good in a business.

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Opportunities & strengths

1. Strong fundamentals

   Kinsale Capital has one of the best combined ratios in the market, ROE, margins, a unique quantitative edge, which allows them to reach the usually not interesting to big players small accounts, and a highly capable management team. I believe this will allow Kinsale to continue leading the E&S space.

2. Market share expansion

   Currently, Kinsale holds a 1.1% market share of a $98B fast-growing market. I truly believe that with their unparalleled efficiency, they will be able to capture market share from the competition.

   

3. Uncertainty

   Knowing Kinsale, they will turn the risk of uncertainty into an opportunity for growth. As more competitors will retract from more risky segments of the insurance industry, Kinsale will come, and pick up the safe parts of the risky segment for tremendous profits.

4. High scalability

   Look at this chart of FCF/employee. Because of their automated processes, they are able to scale exponentially.

   

Balance sheet check

Not gonna dive too deep here except just give a safety check.

Let’s look at some metrics:

Cash: $126.7M

Total debt: $183.8M

Interest coverage: 38.28!

Debt/equity: 0.17

Valuation

Historical median P/E ratio: 38.23

TTM P/E: 34.12 (10% lower)

Forward P/E: 29.41 (20% lower)

3 yr. analyst EPS growth CAGR: 23.3%

3 yr. analyst revenue growth CAGR: 24.2%

This stock in no way, shape, or form is cheap. In my DCF, I got that the stock is trading around 10% below fair value. I will continue holding on to Kinsale but you have to remember that it is a much different decision to buy a stock at a premium valuation than to hold on to your best performer.

All this said, I leave you to do your own dd but hope that I managed to give you a thorough overview of this exceptional company.

As this is my first publication, I am open to any comments about what I might have missed or what you think about the company. This analysis is for education only, and by no means a recommendation to buy or sell. As I mentioned, I hold a sizable chunk of my portfolio in Kinsale, and even though I tried to provide the full picture, I believe that I will probably still be susceptible to investor bias, please keep that in mind!