Chit Chat Stocks - Dissecting 10 Small Cap Stocks (DUOL, BILL, And?)

Episode Date: May 15, 2026

No Power Hour this week. Instead, we are diving into a pre-recorded session where we discussed 10 different small-cap stocks in our "small cap of the week" format. ***************************************************** Subscribe to our newsletter, Emerging Moats: emergingmoats.com  ********************************************************************* Chit Chat Stocks is presented by Interactive Brokers. Get professional pricing, global access, and premier technology with the best brokerage for investors today:  https://www.interactivebrokers.com/  Interactive Brokers is a member of SIPC.  ********************************************************************* Check out Value Spotlight: Stockwriteup.com  ********************************************************************* Fiscal.ai is building the future of financial data. With custom charts, AI-generated research reports, and endless analytical tools, you can get up to speed on any stock around the globe. All for a reasonable price.  Use our LINK and get 15% off any premium plan: ⁠https://fiscal.ai/chitchat  ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

For the past three years, IBKR individual clients averaged 24.3% annually, beating the S&P 500's 23.1%. Lower costs and 170-plus global markets matter. Interactive brokers, member SIPC, visit ibkr.com slash performance. Welcome to Chit Chat Stocks, a podcast to help you find your next great investment. My name is Brett Schaefer, and I'm joined, as always, by my co-host, Ryan Henderson. We are not bringing you a Power Hour this week. This is our Friday episode. Both Ryan and I will be out of office.

We're not doing a traditional live Power Hour with audience questions. At the same time, we have gotten way too many recommendations for small caps of the week, which is kind of a weekly little segment we do, five to seven minutes, covering an undiscovered a smaller business micro cap in the investing world during the power hour along with a live audience so we decided to do an entire episode dedicated to 10 small caps of the week i'm sure we're going to call it something like 10 small cap hidden gems 10 small cap stocks blah blah blah we'll get to the seo stuff later for the title listeners don't care about that but we're going to go through a similar format we'll alternate i have five ryan has five we're going to do five

minutes over the company. We have exciting things such as Duolingo down to a company that does envelopes in Canada and is expanding into the United States. We're going to spend five to seven minutes on it, and then we're going to talk about which ones we liked. Remember, these are not recommendations, but generally turning over new rocks that we may want to research further. It's important as an investor to have this filter, look at a bunch of companies, and decide whether a company is worth researching further or not you're going to spend a couple hours looking at it in depth ryan i had my first talk but first anything before we get started no as far as structure goes for the next hour or so brett took maybe i would say more listener recommendations

and mine and some of them were most of them were companies i've never heard of so more more along hidden gems route i've got one listener recommendation and then we wanted to do a few controversial companies as well to maybe spice things up yeah yeah stocks that have been high flyers that uh are down to small cap now right yeah yeah uh former large caps newly small caps we can uh talk about those let's kick things off with your first one this is a company i have never heard of i believe this is a listener recommendation take us through it all right it is supremax tickers x s x p in canada yes this was a listener recommendation supremax is a manufacturer of envelopes and it was a recommendation from a listener jf uh don't fall asleep listening to

this one it could be a deep value play i know envelopes isn't exactly the sexiest name but But look, there's always opportunity somewhere. Here's what JF said. They have a monopoly in Canada after buying everyone else and are also consolidating in the Midwest of the United States after acquiring many manufacturers in the greater Chicago area. They buy small mom-and-pop companies and often just take the order book and consolidate volumes in their existing plants.

And they have begun diversifying into packaging to boxes for medication, perfume, etc. So trying to get out of just envelopes into packaging for e-commerce and delivery services. You know, right away, I thought this was a potentially interesting deep value micro cap. If there are some, you know, returns, they have return on capital at a consistent rate. And they kind of trade at what you might put it as a forgotten valuation. Seven times earnings. Maybe the company does good with it. Good with the cash that's piling up on their balance sheet.

and investors forget about it. People go, oh, I like the hotter names. And they're just going to leave this out to dry. If you have a good capital allocator at the helm of one of these type of companies, that can do wonders for you. However, on the other hand, aware that envelopes are a steadily dying business.

They have some data on that. It's not going down as fast as you might think. And then on the other hand, they're also trying to go into some growth categories, e-commerce, delivery, and packaging. Here is a quote from the company itself. Over the last decade, Supramix has pursued a three-pronged diversification strategy to sustain revenue and profitability.

First, the company strengthens its position in the Canadian envelope market by leveraging its footprint through capacity allocation. Second, Supramix pursued growth opportunities in the U.S. envelope market by using excess capacity from Canadian facilities and through acquisitions in the Northeast and Midwest. third supremax methodically builds its capabilities in growing niches of the packaging industry mostly through acquisitions with the objective of achieving critical mass of the value-added folding carton e-commerce and label market that's uh i know people might get kind of it's a serious business you know people need these type of services it feels a little bit

like the office tv show very basic business um but they have a monopoly in canada on envelopes I think 85% market share. And if we look at the stock first look, very cheap price to sales 0.3 price to gross profit one and PE of seven. Now we look at that they have a market cap of $90 million in Canadian dollars. And the questions I would have is, what is the acquisition track record? What is the competitive landscape? Are there any industry tailwinds? And what is management's capital allocation plan? Because if you're super cheap, you're going to have cash coming out of the balance sheet quickly. We want to know what management is going to do with that. I feel like getting into the United States, which is a larger business for the envelope market,

is probably smart. And then getting into e-commerce and packaging is probably smart as well, because that could be a more durable opportunity and maybe even a growth sector. I would say I'd call this one interesting. You could probably call up the IR team yourself or talk to the CFO yourself if that is the entire IR team because this is a tiny micro cap. I think it's pretty interesting. And there were two slides they had here that showed optimizing capital allocation,

which they had CapEx, which is pretty light, and then acquisitions, dividends, and share repurchases. They highlighted that. They've done a mix of both. You'd probably prefer as a shareholder for simplicity perspective to just have buybacks and dividends, but they have repurchased stock. They did pay a large special dividend in 2025, which I think makes the dividend yield look larger than it is, but they're still at a pretty high one right now.

And then what I also thought was fascinating is that they really brought down the total debt on their balance sheet. They're pretty much debt-free now. So cleaned up the balance sheet, might make it a simpler story. If you believe they're going to be at a 10% plus earnings yield, which for any beginner. That's the inverse of the PE. I mean, even if this isn't a high growth business, you might be able to do okay from here. Yeah, this actually interests me. And I'll say for micro caps, which I would probably group as market caps under sort of $300 million. I like it when they're boring. I like it when they're kind of unsexy businesses where- Forgotten. Yeah, they're very much forgotten.

And my pitch to listeners on this is everyone else is falling asleep, so be the one that doesn't. And maybe there's some alpha there. I'm looking at the free cash flow over the last five years. Since 2020, they've averaged just under $30 million in free cash flow annually. And you mentioned the dividend. They had the special dividend last year. But judging by their free cash flow, and again, I haven't looked totally at the debt load

here, they should have plenty of capacity to pay out, I don't know, I'd say $20 million or so in dividends a year, maybe not quite, or I shouldn't say that. Call it $10 million. At that price, you're getting a dividend yield above 10%. So I do think there's some good returns here. Dividends, especially for micro caps, give me a little more sense of security because the capital allocation is always kind of questionable so if you get uh if you get guaranteed payments it kind of is a bit of a hedge in a way it's also more important if you're buying something that's low growth trading at a pe of seven and on your debt question they used to have at the end of 2024 43 million dollars in debt it was pretty much around that level for a long time it's now down

to zero when you look at the enterprise value on an aggregator such as fiscal ai they're going to have the leases included in that i didn't look at the details on this they did some sort of lease back agreement that is going to make the ev look higher than it likely all uh likely is so i think their leases actually went up a bunch that's probably because they sold the land or assets or whatever and it's now an operating lease on their balance sheet probably shouldn't be included in the ev but that also could be a good way to return capital to shareholders yeah just for context estimates are for 30 million dollars in free cash flow this year take that with what you will i can't imagine there's a ton of analysts covering this but market cap or enterprise value

today is market caps 90 million canadian so you're trading at basically three times cash flow price to free cash flow again the enterprise value is going to be slightly higher i i honestly was as soon as you described what the company did i kind of teared it out but uh now i'm i am honestly interested this feels very cheap and it feels like an industry that has been neglected frankly for a long time all right let's get to your stock ryan number one this one has been a battleground lately is it it's a potential ai loser uh the stock i guess you're gonna give context to whether how far the stock has fallen because i think it's gone down a lot duolingo yeah i didn't even think about the ai disruption risk but this was we could talk about

that in a second at this time last year duolingo was nearing a 25 billion dollar market cap so would not have qualified for the show fast forward 12 months and an 82 percent drawdown later and unfortunately for shareholders as of two days ago duolingo does qualify as a small cap under our definition, which for this episode, I just went with below $5 billion market cap qualifies as small. Again, everyone kind of has their own definition there, but Duolingo's market cap currently stands at just 4.7 billion. So just sneaks into our hurdle there. What has happened to Duolingo? Well, let's start with the good. So Duolingo is the largest learning app in the world. They got there through a combination of intuitive and sort of gamified user experience.

If you've ever used Duolingo, you know what I'm talking about. They make you feel like you're progressing. It's kind of gimmicky in a way, but it's meant to kind of retain users. A lot of viral marketing and a lot of word of mouth. And it's worth spending some time on the marketing side because this is really important. i would also the marketing that they do is kind of controversial especially right now but i would say they've done a pretty dang good job given the amount they've spent i think if you were looking at duolingo you would assume that marketing expenses are probably one of the biggest line

items for them on the operating expenses it's not it's about 13 of revenue compared to i think r&d is like triple what they spend on marketing so they spend a lot more on tech talent than they do on uh on marketing expenses but the marketing strategy they it's known as unhinged corporate marketing i guess is the term it basically just means they lean into self-deprecating humor so i like amc a little bit maybe i don't really follow them quite as much uh but for example so in 2017 they used to have they've always been a big push notification company so they've always had like almost creepy push notifications or like weird like they'll be like duo is so sad like i can't believe you've not visited him in three days and they'd be like

the their little mascot crying which they actually it got to the point where people talk so much about how creepy the push notifications were that they started running ad campaigns where it was like their mascot like like creeping behind a window and they really played into it and this has honestly worked they also had a recent campaign where their mascot proposed to do a lipa and got rejected anyway it's this kind of gimmicky dumb stuff but it worked for expanding top of the funnel and you think about it today you mentioned duolingo maybe it's just my friends everyone knows what duolingo is it's become very much like synonymous with uh sort of gimmicky language learning and it's been great for virality however it seems duolingo is starting to run into

a wall growth wise so monthly active users have sort of flatlined over the last couple quarters They grew just 6% year over year in the latest quarter. And part of this is by design. Brett's sharing a chart here with the MAUs. I mean, it's been fantastic growth for the last six years, but yeah, it's starting to stagnate now. So part of this is by design. And I think what caught people off guard is that maybe they're closer to saturation in terms of people not hearing about it than initially anticipated. So if the total estimated addressable market for mobile language learners is 1.5 billion people, apparently, whatever that take that with a grain of salt. If you use some basic churn assumptions, you can back into the math that Duolingo has had probably at least 500 million unique users over their life. So a decent chunk of the TAM. So probably 500 million people have at least tried the app. This top of the funnel marketing, like gimmicky duo mascot proposing to Dua Lipa, that doesn't really work for reattracting churned users.

Like churned users have used the product. What they want is a better learning experience. So they're trying to basically shift their marketing strategy a bit at the moment to prove that they're making real substantial improvements in the actual learning path and getting people closer to real understanding of a language as opposed to purely just like knowing a couple words. So that's kind of been one of the big hiccups with Duolingo. It's like, yeah, it's great for whatever games while you're passing time, but it's not great for actually learning a language. They're trying to get over that hurdle. Here's where it becomes an issue. One, that strategy shift, we don't know what it's going to do to growth. And frankly, management doesn't know either. So here is a quote from, I believe, the CFO on the latest call. On bookings, our expected Q2 bookings growth of about 6% reflects a tough comp. The prior year quarter included the initial rollout of energy, a price increase on our most popular subscription plan, and exceptional advertising performance.

We do expect bookings growth to reaccelerate through the second half with about three points of acceleration in Q3 and a further rise in Q4. to me that sounds like we don't know how we're going to do it but god we really hope growth re-accelerates in the back half of the year uh it feels like they're kind of kicking the can down the road here so the the big question i'll go through the valuation real quick and then we can talk about the big question duolingo has an enterprise value of 3.7 billion dollars today they've done 416 million in free cash flow over the last 12 months they've paid out paid out 141 million in stock-based comp over that time so

call it 275 million in free cash flow minus stock-based comp that means they trade at an ev to free cash flow minus sbc of around 13 times what does duolingo have what it takes to re-accelerate growth can can they get back on the path my honest answer is i have no idea i don't see i could certainly see a world where they do but i could also just see continued stagnation um potentially there's long-term disruption risk uh potentially there's sort of just i don't know brand what's the term tiredness uh fatigue brand fatigue yeah so i don't know if if they do re-accelerate growth returns will probably be very good from here yeah and it looks cheap ish people love this

executive team they love the founder my gut check though is i really want to be betting on the founder for a language learning app or an educational mobile app, that doesn't sound like the best business to me. And well, short term, maybe they turn things around. They really accelerate. I wouldn't be surprised either way. But long term, I do think they have major AI risk because personally, AI has killed them for me. I used to be a user, didn't really feel like i was making progress so with gem and i go hey i just have to do a daily query like all right every morning send a thousand words in blank uh spanish for me and have it in this conversation so i can read it and then teach me i kind of narrow it down like all right teach me

what these words mean i want to learn uh 10 new words over the day teach me some of these local sayings blah blah blah i you learn much better doing that i don't think anyone's actually learning a language on duolingo besides basic phrases so yeah i would be extremely concerned about ai risk yeah i think that's that's fair it my question i walked away thinking is there some meaningful advantage that is sustainable for duolingo relative to ai relative to other language learning apps i mean long term everyone's gonna like this might sound weird but long term the trend is everyone's gonna speak english so english and chinese so i well no one's gonna need to learn another language right i mean that's just the major trend uh that's like a

multi-decade thing but still and then technology uh airpod auto translation through uh smart headphones. Yeah. Major concerns, I would say. I think this deserves to trade at 10 times free cash flow. You research your investments, you analyze markets, you manage risk, but did you research your broker? For the past three years, IBKR individual clients averaged an annual return of 24.3% compared to 23.1% on the S&P 500. IBKR's lower trading cost, competitive rates, efficient execution and access to more than 170 global markets helped investors keep more of what they earn and put more capital to work over time the broker you choose matters interactive brokers member sipc if you care about performance find out why the best informed investors choose

interactive brokers at ibkr.com slash performance yeah all right let's hop to your second one uh i could i'll say probably a little less controversial who knows who knows they're replacing the claw machines in the united states with japanese toys instead of american patriotic toys the company is genda that's not the brand at all the ticker is 9166 in japan if you're thinking hey how do i buy a stock in japan i'm living in a different country well that's what our friends Interactive Brokers are for. Genda is a Japanese company, market cap $635

million USD and they really said their goal is they want to become an entertainment giant through acquisitions. They were founded in 2018 don't know much about the management team at all but they started by acquiring a majority stake in Sega Entertainment

they eventually acquired all of Sega and they rebranded in 2022 coming out of the pandemic the Sega arcades as what are now called Geico arcades. They're all throughout cities in Japan. In 2023, they acquired a company called Kittleton, which operates toy

claw games at various retail locations in the United States, and has since started to use, again, this Japan-American relationship to put Japanese entertainment characters, which are growing in popularity, in these machines, and that has helped them grow. In 2024, they acquired a company that

operates karaoke bars in Japan called Bon Bon. all i'll say about that is karaoke bars are very very popular in the country so that's not like a crazy idea that they're coming up with it's probably a nice existing business although you know similar to uh what's a good example in the united states like a top golf you need volume at those locations or i'm guessing your operating leverage goes down very quickly uh they seem to have made many many more acquisitions i could probably list 10 other smaller ones they even have a company in lemonade called Lemonica. It's a quirky beverage that is supposed to be

Instagram-y, TikTok-y. They have weird cups. You take a photo in front of it. I don't understand it whatsoever, but it seems to be doing okay. And I looked at their website. You can open a franchise around the world if you want. But back to the actual business, it's a mishmash of things. They're buying a lot of stuff. If you look at the financials, they are cashflow positive. They claim large levels of adjusted EBITDA But there's a lot of acquisition-related stuff That gets mixed in here They're getting for 30 billion yen in adjusted EBITDA this year

With a market cap of 100 billion yen EV is 175 billion yen They claim, here's what's interesting That might turn around the stock, it's kind of in the gutter There is a moratorium on using stock to buy companies The self-imposed moratorium which I take as a Japanese company

I would take that I would trust that more that they're going to be faithful to that and that they're going to be using debt cheap Japanese debt and cash flow going forward to acquire stocks but acquire less my questions would be

who is management why should I trust them what are the acquisitions in the ROI band if acquisitions slow down what could free cash flow be and really how durable these operations are that's about it There was more from the listener that suggested this one whose anonymous name I think is Mr. Seymour Duck, if that's supposed to be an innuendo.

I'm sorry for anyone, but let's see if I can find it. I think I actually sent him a message here. Okay, this is not good audio. I asked him what exactly his thesis was. He said, recent pivot to shareholder value. they're moving for more aggressive to focus on strictly high roic management froze equity they acquire high quality legacy arcades at dirt cheap multiples three to six times ebitda and plenty of other things oh and then under japanese gap accounting companies must amortize goodwill

over a period of up to 20 years in the u.s goodwill is not amortized so the cash flow might be better than what their net earnings might say on the income statement switching to ifrs which might change things a bit um yeah it's it's tricky but it could be extremely cheap feels like a solid growth market to take advantage of you know japanese tourism and japanese entertainment growth yeah tricky is a good word for the the big question i have is how durable are these businesses like i feel like you kind of need some some sense of the social scene in japan to to have a good so these arcades at least the one that my friends and i visited which is funny enough a geico arcade uh i as a value investor was not pouring my money into these claw machines

but i was watching people do it they were crowded and they were in kind of like say a big commercial strip where there's just probably throughout a day tens of that maybe a hundred thousand people going through this area and you just pop in and go oh i want to i'm a tourist i want to try out this japanese entertainment thing it feels yes very tied to tourism but i don't know how that slows down in japan anytime soon maybe airline prices yeah go this one it does look really cheap if if these uh operations are durable let's hop to my second stock for the day so stock number four on the episode bill holdings this is when we actually looked at i want to say five years ago when the stock was trading at literally a hundred times sales used to be bill.com they've since

rebranded this is a back office financial management software provider for primarily small medium-sized enterprises and surprise surprise they are yet another casualty of the SaaS-pocalypse. In the post-COVID SPAC era, they fetched a market cap as high as $34 billion. Today, they trade at a market cap of $3.8 billion. So- That was crazy. That valuation, that first valuation was nuts. Truly. Quick note, and I know I sound like a broken record here because we talk software stocks all the time, but with the entire software sector bombed out, I do think there are probably going to be some small to mid cap maybe even some large cap as well software names that are going to

make phenomenal investments over the next decade if they are not like if they are misconstrued as an ai casualty and really it's like a benefit to their business or maybe just a net neutral to their business i think some of these trade at really reasonable multiples but as far as operations go bill focuses on three main areas for clients so number one is accounts payable they automate how businesses pay their bills so it uses ai to read invoices routes them to the right person for approval and allows for one-click payments in multiple methods so like ach or whatever and the payments are going through bill as well accounts receivable so automates how a business gets paid it allows businesses to send digital invoices track when they are opened and

set up automated polite reminders for late paying customers that is probably what they're best known for i mean it's kind of embedded in the name bill.com really the accounts payable and accounts receivable is sort of their bread and butter and then the third uh arm of their business here is spend and expense management they got into this business through their acquisition of divvy for two and a half a billion in 2021 which i know sounds like an extreme valuation to pay for this given that it's almost their entire market cap today but keep in mind it's a stock acquisition and they were trading at a price to sales multiple above 100 so you honestly sometimes the right thing to do is use your stock to acquire other businesses if it's uh productive for your existing

business as well or helps it but this segment is basically just corporate cards with built-in pre-approved limits which doesn't sound like a two and a half billion dollar uh company to me or product but nonetheless people use it and there's been good growth in that segment as well to give you an idea of the kind of customer bill is going after their biggest competitor is really quickbooks so it's these smaller operations that are using like just the smallest form of accounting and quickbooks has like invoices embedded into the platform As you get slightly more complex in your operations, that's usually when companies will graduate to bill beyond QuickBooks. So I imagine a lot of their customers actually use QuickBooks for accounting or whatever and then also have a bill subscription for more of the accounts payable and receivables. the growth has been uh really really solid over the last five years uh basically 50 percent revenue

kegger granted it's slowed in recent years but still double digit revenue growth um over over recent quarters and they have turned the corner basically to profitability but i guess one quick caveat here is that bill earns about 150 million dollars per year out of one and a half billion in revenue purely on float interest so when you schedule a payment it sits in bill's accounts for one to three days before it's processed and bill is collecting interest on that so they are somewhat interest rate sensitive which is why we've seen over the last year a slight decline in interest revenue, despite payments volume growing. So overall thoughts on the business, I do think invoicing would be one of the lower hanging fruit areas for AI to disrupt.

But so far, we haven't seen that play out in the customer numbers. And there's a lot of sort of additional workflows around invoicing, accounts payable and accounts receivable that Bill provides that again small businesses i think people are overestimating how much they're going to use ai to do every part of their business like i think sometimes they want a white label solution out of the box that works perfectly for what they're doing not building everything from the ground up with claude most of these businesses probably don't use claude on a daily basis at least to build internal applications so i i kind of think this will hang on and grow for a lot longer than people suspect. Let's talk valuation real quick. $3.8 billion market cap. They've got

$2.2 billion in cash and equivalents on the balance sheet, but $1.8 billion in long-term convertible interest-free debt, which is kind of a nice to have for them. So $400 million in net cash. Enterprise value, $3.4. $379 million in free cash flow this year. So about nine times free cashflow, but about half of that, more than half that is in stock-based comp. So again, one of those sort of criminal SBC issuers. It looks criminal now, but if you're trading at a hundred times sales, it makes sense to be using SBC as a tool for attracting talent, frankly, because it's essentially a cheaper form of currency. So it's kind of hard to fault these companies when they were trading at ludicrous valuations i could fault them it's it's setting

up your employees to hate you so it's it's short it's short-sighted but that's it we could have an hour-long discussion on that yeah yeah that's fair the it doesn't seem necessarily dirt cheap here unless we start to see significant reigning in of stock-based cop and my gut tells me that there's a whole bunch of pressure on a lot of these software companies right now especially these emerging software companies to lower their stock-based comp line like it seems like one of the biggest knocks on their businesses right now because they no one trades at a real gap earnings multiple below 10 because of this massive sbc line and it's like leading to i think a lot of friction with investors because that classic like oh but what about stock-based comp yes i

think that's a fair critique and my gut tells me management's going to really start to rein that in they already have been it's come down i think three years in a row now so long term i think the business is going to be okay i'm i'm pretty interested in this one yeah the business seems all right i i don't think it's going to get disrupted it seems durable i've actually recent user of the product uh on a receiving end of a bill and it was quite easy to use but i kind of maybe if it gets cut in half again like why why would i own this over something like wix or money.com same sort of ball game same sort of sector potential ai disruptors but much much cheaper i don't understand yeah it's competitive like i think it's a competitive industry they do

i don't know i guess the uh i think the name does them a lot of favors honestly bill.com like sure If you're just looking for the first solution that you find, it ends up being a pretty good, I guess, digital real estate there. Yeah, it's just every time I look at these, I think this could work out. But what on earth were people thinking four years ago? Who was paying 100 times sales? They're not that cheap, especially if you have to still expect like a 10% revenue growth trajectory, which can't happen for all of these companies. all right let's keep it moving my stock number three is named karu for some reason this company has five o's in its last name i will say please change this it's not like a gimmick that works

at all it's a strange business name uh it's a business that is a software and i guess sensor provider for the transportation and logistics market ryan but can we is this top five worst corporate names of all time from what we've studied i think so yeah i mean i like the ones that are either super vague or just extremely on the nose like bill.com anything else really doesn't help all right quote karu is headquartered in singapore and services more than 125 000 commercial customers and 2.68 million active subscribers in more than 20 countries Globally, it sells software to help companies monitor logistics assets, mainly trucks and vans. They have a comprehensive suite of solutions like GPS tracking, scoring weekly driver safety,

finding stolen vehicles, geofencing. You know, oh, hey, someone's out of their geofence. What's going on with my contractor? They might be stealing my van. Fuel management and charging and much more. For a large fleet, it sounds like it provides quite useful analytics and can be a cost saver if things go wrong. you know i'm sure amazon walmart's targets uh they probably have this type of thing internally you know ups fedex what have you for example if you have cold storage for food and a truck has

an issue it will quickly alert you so you can get a fix out as fast as possible to not spoil your product funny enough it actually has the largest presence in south africa which i guess makes sense given the huge safety issues in that country uh revenue has grown by 18 annually since 2019 it's at $307 million today, 70% gross margins, 28% operating margins, which means $85 million in last 12-month operating income, giving us a price or EV to EBIT of around 17. They're trying to expand it to Latin America, Europe, and Asia. The big question probably remains, how successful is this expansion? Because to me, this feels like a business that not a lot of people are going to try to go after and it looks like a good business like how would you rip this out

you get good value you probably play a decent price and you get a good roi yeah i'd imagine high switching costs here uh if you're embedded on a lot of these vehicles it do you have any sense of like competition or what earnings growth could look like in the coming years is there do they give out any guidance uh competition i'm sure there's some other players out there i'm sure some of the bigger ones have you know and like i mentioned have their own internal services but growth uh it's been steady i mean did i forgot to put that in here i think they are like yeah 18 annually since 2019 it's been pretty much up and to the right i'd assume they just land and expand with operators uh they talk about again the opportunity

to expand it to new geographies which i think you know latin american asia would be quite promising especially because again the safety issues which are important when you're you may or may not be relying on local law enforcement uh trusting them as much to help you get your assets back the valuation looks all right um singapore business yeah there's a lot of intricacies here singapore business south africa kind of a little bit of a weird story but the stock looks fairly cheap i mean 17 times earnings uh pre-tax earnings 18 durable revenue growth kind of a small cap off the radar. I know this was another listener recommendation. Unless their capital allocation is just absolutely horrendous, I feel like this is setting up to be a decent performer and definitely

one to put on the watch list. How many investors do you think truly, truly just write this business off purely after they see the name? It doesn't help. That's fine. I don't really care. It's a laughable name but hey i don't doesn't matter to me yeah like the business don't have the name but yeah it does look actually pretty interesting let's jump to my third stock for the day this is a company i have had never heard of prior to this listener recommendation so thank you for sending it in it's correos de portugal known as ctt this is pretty much a sum of the parts story and unfortunately, I wish I looked at this sort of two years ago, the cat's kind of out of the bag a bit on it. So I'll go through the different pieces one at a time. CTT, what most people

probably know them for is they run the national postal operator in Portugal. This is a regulated monopoly consisting of 569 post offices and 1800 postal agencies. The business is in complete structural decline. Volume declines have been basically 5% every year for as long as the data shows because it is cheaper and faster to send mail digitally. That's pretty simple sort of disruption theme there. CTT has been slightly offsetting these with price increases, but overall revenue has ultimately declined and margins have compressed. And also, I don't know, The whole price increases to offset consistent volume declines is not a formula I love, honestly, because especially with mail, because it just deters. It's not an addiction. It's not so like people. It just incentivizes people to go digital even more than they already were. anyways this business i think is what people probably think of the most when they hear ctt

however it's sort of become i don't want to say an irrelevant piece of the story but it's a very small part of the earnings or the aggregate earnings for correo state portugal so today the largest segment by revenue and earnings is now express and parcels so separate fulfillment network but it handles business to consumer e-commerce parcels this business is growing as you suspect with online shopping overall it's growing the top line 10 to 15 percent per year and they're they've also seen i believe a big flood in of increased volume from some of the chinese players so like the the team moves of the world and stuff like that they this business seems solid seems rock solid uh obviously replicating a fulfillment network isn't easy it takes usually

years decades to build out the third business here is banco ctt it has 789 000 clients the business seems okay it's a bank now the one issue and it's been one of the faster apparently fastest growing banks in portugal and they use i guess their postal offices as sort of like pseudo banking offices. It generates about 20 million a year, 20 million euros a year in net income. But I think the hidden, we talk about this with banks all the time. You never know what the lending operations look like. You don't really know what the lending quality is. So management has actually been trying to sell down this stake so they can deconsolidate it from their operations So they can get up below 50%. It's not a huge piece of the puzzle. And then the last segment

here I'll talk about is financial services. So this segment refers to CTT using their post office locations to be the sole retail distributor of Portugal's certificates of savings. So this is government bots, basically. Business is pretty simple. They earn commissions every time they issue something. So and this has now been merged into the mail. So now it's called mail and services, but it's a bigger piece of earnings. In terms of earnings, it's going to be express and parcels, financial services, the bank, and then lastly, the post office now, which is ironic because that's kind of what they're most known for. I'm going to steal some of the valuation work I saw on a good Value Investors Club write-up. He basically says the mail business gives it a

four times earnings EBIT multiple. He values the bank at less than one times book, so 0.9 times your equity. He gives express and parcels 12 times EBIT, and he gives financial services seven times EBIT. I think those all sound reasonable given what I know about them. Again, don't know these businesses super well. That all leads to basically just over a 1 billion euro value on some of the parts. There's also a real estate part that I don't really know about. But anyway, just over 1 billion euros. In 2024, the stock was, I think the market cap was at like 300, 400 million euros. So you could get a double today. Market cap's at about 800 million euros. So I think the cat's kind of out of the bag here also i don't love some of the parts situations just in general

and it seems like management is trying to clean it up and make it just a true earning story here but i don't love some of the parts to begin with i really don't love it when i don't know the parts well at all well yeah you could learn more right that's the point of this episode uh or or the decision uh after this episode but i looked while you were talking the company seems to have bought back some stock it has declined at a 2.8 annual rate since the beginning of 2023 roughly so not bad that could help a little bit on on the you know finding the true value within the business yeah with these international kind of low growth maybe you have that durable grower with the parcels business within the mix there if it's trading

an extreme discount it can get interesting but i agree with you if we're at i mean i'm looking now and this could be a little misleading because there is the sum of the parts pe is 17 ev to sales not 0.9 um maybe that ev is totally off price to book is three now i i know there's financials plus operating businesses so it gets a little messy on how to truly value it but doesn't look extremely attractive today yeah maybe it works pretty well but this is this would turn in from my first look of more of a deep value play into a confidence in the business quality to management play and it doesn't seem that enticing to me especially in portugal low tam yeah i don't want deep value there the the parcels business is also it's portugal and spain

sort of combo but uh yeah it's a lot of complexity here um and i don't know using i'm kind of borrowing people's valuation work but it doesn't look like the upside is quite as high as it once was and given all the complexity risk i guess you're taking but let's hop to your fourth stock got to keep it moving nano dimension yes and before we do that let's talk about our sponsor ryan one you know quite well your employer fiscal ai user link fiscal.ai slash chit chat get 15 off any paid plan maybe you take them through the new product with a portfolio tracker that i think many many listeners would like to use yeah we just launched as of this episode coming out uh brokerage connections so you can now plug in directly link your brokerage accounts from

multiple accounts uh into your physical ai dashboard which is a huge quality of life improvement for any physical ai user because now you get real-time updates analytics you don't have to uh basically update your positions manually anymore it's all tracked it's it's great i recommend checking it out uh it's free to connect your brokerage so test it out see if you like it again if you do any paid plans 15 off with our link fiscal.ai slash chit chat let's talk nano dimension brett yes what is this one that uh i picked up on a fiscal ai screen i just kind of it high revenue growth high gross profit hurdle on small caps and pick something to look interesting nano dimension interesting name i i picked it up here here's what it says quote driven by strong

trends and this is what their website says they do driven by strong trends and onshoring national security increasing product customization nano dimension ticker here's nndm delivers advanced digital manufacturing technologies to defense aerospace automotive electronics and medical device industries enabling rapid deployment of high mix low volume production with ip security and sustainable manufacturing process practices so what does this actually mean they sell and use to make products highly advanced 3d printers for electronics advanced manufacturing aerospace things like that the printers are very expensive they come with a razor razor blade model with the ink quote-unquote being the you know metal dust i don't know exactly how it works that people

regularly buy they also build products for customers with these printers you're in defense and space medical electronics these are their main customer bases i don't have the details on exactly who their core customers are that's the point of this small cap episode deciding if we you know it interests us enough before diving further now the company has shown strong growth a little bit through acquisitions, but they recently sold off their electronics 3D printing segment for I think what could be $10 million

and is now focused more on industrial and machining businesses. This is kind of from what I understand. They're also working with an investment bank, I think Guggenheim, on a strategic review for operations. So we could see some value creation here. What's weird is this is a,

it's a strange story. It's potentially a nice growth story, but the company has horrendous operating margins. I think negative 70%. And it's burning a lot of cash. Now, on the other hand, what's also strange is that it trades currently below the net cash on its balance sheet, and has been repurchasing a little stock. So you're in a weird situation, because they have so much stock, they can buy back a little bit. I mean, given their burn rate, they have many, at least a couple of years left. And maybe they're seeing the strategic value, they're going to sell some stuff, who knows,

gross and operating margins have begun to improve, but there's still a long ways to go with at least the operating margin portion. I'd say it's a very strange situation, but if you look at them and they have the strategic review, that could be a catalyst to split up the business. And there seems like there's going to be strong demand for these advanced manufacturing services in the years ahead, especially with the reshoring becoming a national security concern. 3D printing has been a little bit of a bust but i think within these advanced areas there are some potential capabilities i get space and defense it's huge huge product uh it's just really really helpful there um you remember a company named desktop metal i believe they acquired them potentially out of like

bankruptcy so they got them on the cheap it's it's a mishmash of things but maybe with the strategic review net cash on the balance sheet there's some value here and shareholders could make out uh all right i for one i'm interested in maybe reading more of what management has to say yeah if there's a path to profitability here or like if management shows that they actually care about profitability i think this is interesting because you mentioned it market cap 391 million dollars today they have cash and short-term investments of 460 million on the balance sheet. So negative enterprise value, I would hope, given that they are buying back, that management is aware of the valuation and paying attention to it and thinks there's ways to generate returns

for shareholders here. Business-wise, I've got zero takes on sort of the longevity or durability of this this business or even the competitive positioning but yeah it is interesting i mean anytime a company has a negative enterprise value there is the potential for management to create shareholder value yeah it's it's messy for sure go get tricky but hey i'll say it again if they're making these strategic reviews and they say they're on the path to getting to profitability maybe it screens terribly on evaluation perspective maybe the profitability looks terrible right now

but there's an opportunity to there's an opportunity there all right number four for Ryan one we've covered a long time ago nice interview I'm curious how this company has been doing very mobility the company that many people probably hate if they knew what they did yeah no a A hundred percent. In terms of individual civilians, you hate this business. Shareholders, you might like this from here on out. This pat on the back to Brett here, I believe he gave it this nickname. It is the toll road on toll roads.

So to be a little more specific, they make cameras and offer managed services on top of it that essentially give you automated tickets or give you automated toll charges. So there's two segments that really matter to this business. They also have a parking segment, but it's a small percentage of revenue. So it's commercial services and government solutions. On the commercial services side, Vera Mobility partners with rental car companies to manage the headache of tolls. So when a renter drives through a toll without a transponder, Vera's system automatically matches the license plate to the rental agreement, pays the toll authority, and bills the renter's credit card, often adding a convenience fee. convenience in air quotes there on the government solution side vera mobility partners with municipalities and school districts to enforce traffic laws so they are the company that installs maintains and manages red light and speeding cameras for cities like new york chicago

pittsburgh and others and they also have i didn't realize this they have a school bus safety camera business where it attaches to the stop arms like you get cameras that attach to the stop arms and it automatically captures the license plates of cars that illegally pass a stopped bus so they are the nice that's a good one yeah they are the digital enforcer of of tickets basically or tolls both of these as far as business quality goes of so far of the companies we've talked about this is number one for me i mean the switching costs have got to be really high both of the commercial and government services have generated 15 go ahead i was gonna say post-government they're just gonna set and forget it yeah a hundred percent the

they've grown at 15 annual revenue they've grown at 15 annually on both of these segments very similar growth rates actually it's not going to be hyper growth but i imagine there's a lot of price and power for Vero Mobility, especially with the governments. Once you've got the cameras embedded into all these locations and you're giving the governments ticketing revenue on a regular basis, the governments are going to appreciate it. I mean, Vero Mobility is basically a revenue generator for municipalities. So you can always kind of, I imagine, make the case that it's worth sort of eating the price increases. The expectations are for about $250 million in operating income this year for the whole business. They've got a $3.2 billion enterprise value. So

EV to operating income around 13 times. I think it's pretty reasonable. Management has been buying back a lot of stock in recent years. So they've reduced the total shares outstanding by about 4% per year over the last two years because the valuation has come down. I like this. I really do it's boring uh maybe it's a hedge against any speeding tickets i get it's makes me feel a little better owning the operators here but uh a reasonable valuation and honestly a high quality business yeah it looks pretty cheap i'm surprised it's down so much i wouldn't expect this volatility uh tip for the listeners i get hit i got used to get hit with these uh weed has a super sensitive one like driving right and not fully stopping at a right turn uh at a light you can't understand

what i'm saying uh and you can get out of pretty much any ticket i believe by just saying you were driving the car which i wasn't full disclosure to anyone in case they listen at the time yeah yeah if you say that they have to let you go um that saved me a couple hundred bucks but in regards to this actual business yeah it feels pretty durable there is probably some but if it gets big enough there's potential political but backlash from local places i've seen it before i actually grew up right next to one of the harshest um like the neighboring town was the harshest traffic camera one it generated like it's not a very big city in the whole state of washington it generated more than the rest of the state combined i believe i believe don't quote me

on that. But even if there is some of that political backlash, it never turns into a giant thing where they get rid of them. You kind of just deal with them. And I think the revenue has got to be sticky. And you're right. It's similar to, well, it's not as potentially immoral because there is some safety concerns here. But it's almost like a casino or bringing on cannabis stores. It's a good way to generate tax revenue. Not as vice as this, but I would say I'm pretty anti uh traffic cameras yeah it's like a dystopian company honestly but i mean the service they provide is is important to their customers and sticky so can can make for good returns as shareholders let's move to your fifth stock for the day uh can i don't i don't love this name

necessarily but i don't really know what it means prog holdings uh well ryan it means progressive lending yes another bad name uh thank you to listener tyler for this recommendation he says in the sub stack chat small cap of the week prog holdings management has given guidance to 2028 very attractive valuation serial share repurchase serves the subprime consumer with four financial products progressive leasing for money app and purchasing power four is a buy not pay later solution and again the name of the company comes from progressive leasing on purchases if someone is denied with their credit card at a retailer, you know what they do? They come in and lend money to that person. They can use a product to finance the purchase due to the company's

relationship with retailers. You got to love the United States sometimes. Really lets you buy things. If you can't put it on credit card debt, we got another offer and you're going to buy that sofa just fine. There's also a subsidiary called Vive Financial with traditional revolving credit for subprime borrowers. So that's not attached to any retail purchase. They have four technologies, a BNPL service. Look, first thing, looking at any sort of financial and payments business, I'm just going to look at the valuation. Consolidated net income has been positive every year since 2018. That consistency is probably something to look for because they've gone through a couple of weird periods here, inflation, the pandemic, and they've been

positive every year. Now, shares outstanding have fallen by a 10% annual rate since 2020. That's interesting. The PE is currently 10. So even if they don't grow, you can get solid returns if the business is stable enough just through buybacks and capital returns. They have a little bit of debt on the balance sheet, but nothing too crazy and they're paying it down. And the big question is just around durability and loan performance. But these are probably shorter term loans and they're already pricing for a consumer that's in distress. So So all of these consumers that are buying with them are already in a recession. So that sort of risk, I think, is mitigated similar to the dollar generals of the world. Any subprime lender, anyone that serves the poor parts of the United States economy, they are actually more recession proof than, you know, the Whole Foods, the Lululemons, the more premium brands out there. yeah it's it doesn't sound great being a subprime lender i mean even the words

sound like probably turns off a lot of investors but great recession yeah it just triggers a war in your head i mean you're right it doesn't take much growth from here to generate a good return at 10 times earnings they're committed to the buyback i think you can get solid returns i mean we recently had a pitch on sezzle look at that company they're they're doing great shout out to uh mono invest what's his actual name he's he might be listening to this right now it's not but it's oh my gosh uh i'm blanking on it but i know you as mono invest sorry that's uh if you're listening but great pitch people should go listen to that yeah what's that stock up like 100 percent uh past five years up 600 percent total return so yeah i mean these can make for

good businesses obviously it's not like the dream customer for for most businesses but they know what they're doing they know the field they're operating in so i like it honestly um the big thing for me is like is there like one horrible judgment day in four years where their loan book just gets destroyed that's kind of i i'd always be thinking about that as a shareholder but at 10 times earnings you're not taking a ton of risk yeah and that's kind of the thing like oh how many do they have decades of experience here and i think it probably comes down to do you trust management to be frugal uh lenders it's probably it at the end of the day okay last stock number 10 this is one that people i don't think i've ever been to one of these locations but

they may not be in the pacific northwest united states maybe ryan can tell me if he has academy sports and outdoor yeah if you're not based in texas you might not have ever heard of this company because 35 of their stores are in texas uh but yeah it's one of the largest sporting goods retailers in the united states i think it's uh 300 something locations in total now they went public in 2020 after being acquired by kkr 10 years prior uh so they were private equity business for a decade kkr took them public at what ended up being basically a temporary peak in earnings so in case people don't recall this shocker if private equity is dumping something out of the public markets lesson there right they're dumping it on you for a reason portillo's

i made that mistake yeah the so in during covid i don't really remember this happening but apparently there was a massive boost in demand for outdoor recreational goods so like fitness equipment like people were building home gyms obviously because they're going to go to the gym hunting fishing camping gear they were buying for what they the few activities they could actually do at the time which led to a massive jump in earnings so for to which also they weren't adding any new stores at the same time so there weren't any expansion costs so you saw a huge boost in operating margins in 2020 to paint a picture of this academy went from four percent free cash flow margins to 17 free cash flow margins in 2021 so they quadrupled uh cash cash flow margins and

they haven't recovered earnings since and there was also yeah brett sharing the chart here i've got comp store sales growth and you just see a massive jump in 2020 2021 they had 16 comp store sales growth and 19 since that time they have had negative comp store sales every single year so minus six minus seven minus five minus two for basically 2022 through 2025 and what i think is important looking at that dicks uh who you're comparing it to has recovered quite nicely yeah dick sporting goods is the largest in the united states they have produced positive cop store sales during that same time frame i'm not sure what's creating the outperformance from dicks necessarily i would think that they the results would be generally comparable given that they cater to

similar audiences but results have improved over the last year or so comp sales are basically flat now the operating income per store which has essentially declined for five years straight is starting to stabilize they've got or analysts expect 420 million dollars in net income this year 3.4 billion dollar market cap today billion dollars in net debt so basically just over 10 times earnings this year's earnings i'm i'm mixed on this one i have been as a customer i bought like a 30 soccer ball it's nice it gets you a your quick fix for whatever the recreational sport is you're playing or whatever i don't know why this would have positive comp sales from here on out like i'm not sure what would drive that to me this feels like something that still would get eroded

away by e-commerce or by Amazon. But I mean, I guess if they haven't by now, they've withstood the test of time. So they are also in growth mode at the moment. They added, I think, 24 new stores over the last year. So they're growing store count by almost 10% a year. I guess if you think they can get even low to mid single digit comp store sales growth plus eight percent new stores i think there's a recipe for growth here yeah p is only 10 uh i don't love these even dick sporting goes as well they've executed quite nicely i just think of the ones back in the day sports authority is where i used to go as a kid and it's they're they're gone now it's really easy to screw up this business

and you kind of feel like you go into booms and bust. Yeah, I don't love it, but it's cheap. So if you believe in this management team, it could be all right. I like Winmark with, what is that?

Not Value Village. Play it against sports and other brands better. And that one's always expensive, but that's the one I have on my watch list for any sort of sporting goods. It was a great business model.

People just give you your product. Yeah, it's like goodwill, basically. I mean, you've got quite the supply advantage relative to Academy Sports. Yeah, nice cost advantage. All right. Well, that's 10 here. I have a concluding question, and I hope I can help out us and the listeners of Potential Stocks to research, rank, or just say the three. I don't really care about the order.

The three companies out of these 10 that you have more interest in after this episode, I am going to go through right now and say Prague Holdings. So Vera Mobility and I'm not going to do the envelope company. I'm going to do Carew because I think those just have – Prague may be more durable, not as big growthy, but Vera and Carew feel like the durable growth at a reasonable price that just makes more sense as a buy and hold investment. I'm going to go Vera Mobility, number one. I'm glad I revisited it.

The number two, I'll go with Prague Holdings as well. Good valuation and committed to the buyback. And then number three, it's kind of a toss-up for me between – we probably should call them by their name, but the Envelope Company, I think. That one's actually pretty interesting. Supremex. SXP on the Canadian exchange. And then Bill Holdings is probably tied for third with Supremex, but I think I need to see valuation come down a bit. So we're both saying Duolingo going to zero.

Yeah. No, I don't know what's going to happen, but it just seems risky to me. All right, Ryan, anything else before we get out of here? I think that's going to do it. Well, I guess I should have said we're recording this on May 6th and it's coming out over a week later. I don't think it's going to make that much of a difference.

Maybe there's some earnings that are going to come out between now and then. We're not going to have any big takes on these stocks, so I don't think it should be a huge difference. But yeah, let's hit the disclosure and get out of here. We are not financial advisors. Anything we say on the show is not formal advice or a recommendation, Ryan and I or any podcast guests may hold securities discussed in this

podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you, everyone, for tuning in, and we'll see you next time. i finally had a light bulb moment about a stock we've all heard about growing at 18 a year and 15 pe i shared this insight in a special deep dive report to subscribers of my research service Value Spotlight. The report is called A Generational Moment, Reigniting Human Connections Through a Tangible Network of Intangible Assets. Chit chat listeners can get a discount to my research at stockwriteup.com. That's stock, W-R-I-T-E-U-P.com. Where some see heroes and others see egos, Bloomberg sees the era of billionaire athletes.

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