Thanks, Delta

Good morning investors,

Hope you are enjoying this increased volatility in the market :)

If you are worried about the volatility take this time to step away from your monitors and get outside. Stocks will be highly volatile over the short-term, but over the long-term it pays to own them.

Keep having a long-term focus and stay invested in the market through all cycles.

Remember this formula:

Time in the market > Timing the market

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Update on a portfolio company

Wanted to give a quick update on one of the portfolio companies that I own that has reported today. Subscribers can find the most recent investment write up here for reference.

Overall, results were really strong. As a background, this company sells women’s clothes in strip malls across America. Current market cap is $355 million and the enterprise value is $137 million. There is still over $30 million in income tax refunds in the accounts receivable and owned real estate assets likely worth $50-100 million. Basically, at the current valuation investors are buying this company for free.

In the quarter this company generated $207 million in sales and $21 million in EBITDA. The cash flow statement is now out yet as the 10-Q hasn’t been filed but the cash balance has increased by over $33 million.

Same store sales were up 23% over 2020 levels and from 2019 levels they were only down 5%.

I expected the stock to re-rate much higher this morning. Initially the stock went up around 7% but pulled back quickly as the boarder small-cap market sold off. If the entire market didn’t sell off I would have expected this stock to re-rate much higher.

My price target of $30/share is unchanged with gives potential upside close to 100%. As a reference, the stock traded over $40/share in the past, with similar profitability margins as this company is posting now.

I added to my position today. I love the company at the current valuation and think it could be a major winner for 2021 and beyond.

Companies I am adding too

  • Earnings report for this stock should come out later this week or next week. I have been adding given the stock is down 20% from where I was originally buying it at on no news. Super illiquid so a 100 share trade can swing the stock up or down 10% in any direction. Will provide an update when the earnings are out.

  • This company had a huge pull back today. I sold out of the stock a while back when it re-rated and rotated into two of their peers (see the research reports here and here). If the stock continues to selloff I will buy back in.

  • Holding strong on this stock. The share price has been weak but the operating results are getting better from the COVID lows. Should be profitable or close to it next quarter. There is at least 50% upside here.

  • I am looking at a few other companies and close to pulling the trigger on one. If I ever pull the trigger and buy I will send out a new research report to all subscribers.