The 10th Annual New York Value Investing Congress takes place in New York on September 8th and September 9th 2014. ValueWalk will be providing coverage of the event- below is a summary of a presentation by John Lewis on compounders & engagement; a double-barreled focus on value creation.
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John Lewis is the Founder and Managing Partner of Osmium Partners, LLC., a value-based long-short equity fund founded in 2002. Over the past 12 years, Osmium Partners has invested in misunderstood and undervalued US-based small-capitalization stocks exhibiting high-quality business models. As an engaged owner, Osmium works privately and publicly, when warranted, to drive shareholder value. Prior to founding Osmium, Mr. Lewis was Director of Research at Retzer Capital and an Equity Research Analyst at Heartland Funds. Mr. Lewis currently serves as a director at Spark Networks, Inc. (NYSE:LOV). He received a BA from the University of Maryland and an MBA from the University of San Francisco
John Lewis on Compounders & Engagement: A Double-Barreled Focus on Value Creation
Launched in 2002
85% of portfolios in top 10
focus on 100m to 1b market cap companies
2-4+ year holding period
located outside of San Francisco
looking for a low valuation, growth ability, and capital allocation
John Lewis on ePlus Inc. (NASDAQ:PLUS)
IT procurement
7.2% ebitda margins vs peers at 4%
4.7x ev/ebitda
aggressively repurchased stock
Cisco Systems, Inc. (NASDAQ:CSCO) makes up 47% of their business
2 opportunities to grow
Complex IT solutions
Debt is misunderstood and misrepresented by data compilers (osmium says they only have 1.9m in debt)
smaller competitors are consolidating
67m in cash + 225m in credit+ run rate of $35m net income
ebitda should go from 77m in 2014 to 150m to 2019
John Lewis on Vitacost.com Inc (NASDAQ:VITC)
went activist in 2014
company was acquired by kroger in july
John Lewis on ZipRealty, Inc. (NASDAQ:ZIPR)
went activist, got sold for 123% premium
Sparks Networks (LOV)
went activist
won proxy contest
John Lewis on Rosetta Stone Inc (NYSE:RST)
think they have some outstanding assets
80% gross margins
reinvest back into the company
spent 780m on Sales & marketing
market cap of 190m
total EV of 148
underperformed the russell 2000 since IPO by 200%!!!
currently $8.72 as sum of the parts
worth 22.74 on sum of the parts valuation
CEO of company thinks Rosetta Stone Inc (NYSE:RST) is worth $20-$35/share
the median EV/Sales ratio on previous transactions in the education industry has been 3.7x….currently RST trading at 1.2x ev/sales
3 large shareholders have filed 13D’s
