Would you keep researching?
Over the years, I've tweaked my investment process and tried to define parameters to drive my new capital effectively. I have too many interests and get too much fomo, that if I didn't try to restrict/limit myself I'd have 50+ positions haha.

I generally keep small caps off my radar because I've learned I don't have the patience they require, and normally don't have the time to do proper diligence, so I end up in a vicious cycle of losing money. I don't even remember where I first saw this one, probably a seeking alpha article about different stocks I own/follow, but I thought I'd poll the audience. I'll share the ticker in the comments, but just based off the data below, answer the poll on whether you'd continue researching the company, and in the comments I'd love to hear why you voted the way you did, but also where you'd go next.

@thegarpinvestor had a tweet the other day that said his goal is to say no to an investment as fast as possible, which was the inspiration for this poll, so thank you for that thought provoking tweet!

Market cap: $140m
Cash on hand (as of Q3 2022): $23m
Debt: $3m, all classified as current
Revenues (2019, 2020, 2021 and LTM for Q3 2022)
37.5m, 42.3m, 55.2m, 62.5m
Net (loss) /income for the same 4 periods:
(14.7m), (8.25m), 4.4m, 9.2m
FCF (defined as operating cash minus Capex):
(9.0), (3.2m), 8.3m, 8.9m

3.33% individual/insider ownership
Public since 2009, 2021 was first year of profitability
Ceo has been in role since 2022, but has been with the company in some capacity since they were spun off and made into their own public company (was CTO prior to CEO)

I'll add a comment with the ticker after the poll expires tomorrow, but will be happy to answer any additional questions you have about the company that may help your vote! Hope this leads a fun discussion 😁
Would you keep researching?
91%Yes!
8%Nope, time to move on
12 VotesPoll ended on: 3/2/2023
Edmund Simms's avatar
I would keep researching.
Capisce Capital's avatar
@valuabl what would you be looking at next?
Edmund Simms's avatar
@capisce_capital I would run a valuation based on analysts consensus estimates. If it looked undervalued I would then do a correlation analysis against my current portfolio.
Capisce Capital's avatar
@valuabl Their website says that two analysis follow them, but I have read a couple transcripts and am not sure I totally believe that, haha. The one research report I can find on them (that references these two analysts) peg 2023 rev at 62.5-65M, and notes that its trailing PE is significantly below its 5-year average, and the forward PE is pretty close to the low end of its 5-year range. I have some concerns as a whole, which I'll share tomorrow, but I see a lot that I like!
Edmund Simms's avatar
@capisce_capital If it looked undervalued and uncorrelated to what I own, I would do a deep dive (3-5 day process).

If you let me know the company, I'd be happy to let you know my valuation. If it's of interest.
Capisce Capital's avatar
@valuabl I would love that!
Conor Mac's avatar
I would!
Capisce Capital's avatar
@investmenttalk where would your process take you next? What red flags would you be looking for?
Ben's avatar
Next is ROE, ROI. Capex/net income. Capital allocation. Debt interest payments. Net promoter score. Industry. Competition. Do they have competitive advantages.
Capisce Capital's avatar
@rpinvestments They are a semiconductor company, and I answered a few of the metrics you listed, but was definitely a good exercise to keep digging!
Image upload
Joey Hirendernath's avatar
Looking forward to learning of the ticker
Steve Matt's avatar
@joeyhirendernath Ditto! Who's the company @capisce_capital? I want to add it to my Do Some DD watchlist lol
Capisce Capital's avatar
@interrobangbros @joeyhirendernath the big reveal will be tomorrow! haha I wanted to give the poll a chance to run its course first :)
Modern Growth Investing's avatar
i have gone through 1000+ companies and I am not stopping anytime before I am 70, so 40 more years
Capisce Capital's avatar
@growthinvesting 1000 companies! Sheesh haha how made it to your roster over the years?
Capisce Capital's avatar
The time has come! Thank you @valuabl, @investmenttalk, @rpinvestments, @joeyhirendernath @inter and @growthinvesting for the engaging conversation (and encouragement to keep researching), and thanks to all who voted!

The company is Everspin technologies ($MRAM), a small cap semiconductor company. I did continue my research, and initiated a position this week, but had a couple concerns that I am going to continue to monitor while I research. They released earnings yesterday and I thought they were pretty solid, but I haven't read the transcript yet.

The things that concern me with this investment are:
1) they rely heavily on third party manufacturing. It feels like their ceiling is capped at whatever their supplier's capacity for them is, since they don't own the process fully.
2) customer concentration. They state that they had over 1,000 end customers, but 4 of them represented 47% of sales. Hopefully as they grow, that naturally evens out.
3) I think their growth may be coming from licensing(which leads to some vanity in point 1 above)- on one hand, it's great that their IP is monetizable, but I'd like to see that in product sales growth haha

Now that the company has been revealed, would be curious if anything sticks out to you one way or another 😁 I like trying to research in public, I learn what other people focus in on, and learn to identify more red flags that I would have normally missed on my own. Thanks again all!
Edmund Simms's avatar
@capisce_capital Based on consensus forecasts, I value $MRAM at $3.00–4.30 per share.
Capisce Capital's avatar
@valuabl very interesting, would love to chat offline about the model itself! Like the composition/math behind it
Edmund Simms's avatar
@capisce_capital, no problem. Send me a message and we can arrange.

Author

Related

Already have an account?