Below is an excerpt from an interview with Logos LP in the upcoming issue of ValueWalk’s exclusive magazine Hidden Value Stocks.  Logos LP’s strategy is built around value, but unlike other value funds, Peter Mantas and Matthew Castel are not afraid to use leverage to boost returns. This approach has produced enormous returns for investors.Since inception investors have seen an annualized increase of 25.1%.

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Logos: We Believe This Stock Can Rise 19x

Your second pick is XXXX. What’s the opportunity here?

XXXX is an IT company focused on a few key niche markets….They have a team of PhDs, consultants and sophisticated developers solving complex problems in blockchain, IoT, autonomous driving, big data and other niche platforms….

The company just posted a terrible set of numbers, what’s your take on this?

We believe the market significantly overreacted. Despite the earnings miss, revenue miss and contracting margins; this should have all been priced in given the company’s transitioning strategy, which has been made clear by management multiple times.

The company is starting to move away from their top two accounts as they are ramping down these engagements to focus on High Potential Accounts.

However, growth from HPAs is expected to be over 80%; telecom is expecting to grow 40%, automotive is expecting to grow near 40%, and their digital segment is expecting to grow 20% in 2018. Despite being in their current transition period, they still managed to increase nearly 18% in the past quarter (growth outside their top 2 accounts grew 55.6%), with high operating margins, high returns on invested capital and no debt.

….

What’s your bull and bear thesis for valuation?

We plan to hold this company for the long term and believe it has a shot at being the size of XXXX or Infosys in the next 15 years. This gives the company, which is focused on the fastest growing and most sophisticated technologies and solutions, a ~+$40 billion market cap up from today’s value of less than $2 billion…. Our bear thesis for valuation is predicated on how slow their transition occurs, currency risk, reduction in IT consulting spending globally and if there is a slowdown in HPAs. That could bring the valuation down to the high single digit billion market cap, forcing the stock to plateau for quite some time.

What do you think the rest of the market is missing?

We believe the market is not pricing the transition correctly. This company is laser-focused on the most complex solutions in niche markets which the larger players like XXX and XXX are only starting to focus on. The level of growth, high returns on net tangible equity and tremendous addressable market opportunity makes this company highly undervalued, especially at 13.8x forward PE and 2.0x sales. XXXX, XXXX and XXXX are 3.0x, 2.4x and 3.3x sales, respectively and have slower top and bottom line medium to long-term growth profiles. We are fairly convinced the company will surpass $10 billion in market cap over the next decade.  

 


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