John Lewis – A Double-Barreled Focus on Value Creation

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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 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

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