Small Cap Equity Transformations

Inefficiently Priced With A Long Runway for Growth

Small caps are not well covered by Wall Street and investors. Hence, small caps are an inefficient market that creates tremendous opportunities to uncover mispriced investments that most others do not follow.

Going a step further, we find that companies undergoing transformations provide the most fertile grounds for mispricings and also have natural catalysts. Transformations are often mispriced because “change” creates uncertainty and reported financials lag changing fundamentals. As a transformation becomes evident, its share price can more accurately reflect the changes.

Our Long positions are often companies moving from good to great by attracting talented leaders, extracting hidden value, and/or adopting better strategies. Our Short positions are often companies attempting to transform to better businesses, but our research indicates this is highly unlikely.

Investment Process

Extensive and Repeatable

We utilize a disciplined five-step process for every investment that consists of:

  1. Sourcing,
  2. Qualitative Research,
  3. Quantitative Analysis,
  4. Investing, and
  5. Monitoring. 

We source ideas from our Watchlist and network.  We then apply both detailed qualitative research and quantitative analysis to determine whether an idea can meet our high threshold for investing.  If our research and analysis result in us having high conviction, then we use our proprietary Positioning Model to help guide how much we should invest in a company. 

Thereafter, we carefully monitor each portfolio company, update our forecast and price targets for relevant news, and then trim or add to our investment as appropriate.


Investing In Only Our Best Ideas

Uncovering compelling transformations at the right time in their evolution requires a deep understanding of the business. Hence, we construct a concentrated portfolio with a limited number of holdings. This approach affords us the time to identify a company’s key growth drivers. It also gives us an opportunity to develop deep relationships with company leadership. In turn, we can better understand how they will execute to achieve long-term business objectives and drive stock prices higher.

We believe that constructing a concentrated portfolio creates a higher level of focus and sets a higher bar for inclusion into the portfolio. Thus, we maximize our investment partners’ exposure to our best ideas.