A small cap with two businesses the market can’t price together: a 40-year-old industrial franchise that grew into a shrinking market, and a measurement-and-power platform that is 17% of revenue and half of gross profit. The short sellers got their 20% day. I think they got the wrong company.
On a Monday in mid-August a short seller published a report, the stock lost a fifth of its value in a day, and a ten-year contract that had been announced two weeks earlier was gone by the Tuesday. A couple of weeks later, management raised full-year guidance for the second time in five weeks.
You either believe the short report described the business, or you believe the guidance did. The two can’t both be right, and the price today sits closer to the short report.
This piece walks through why I think the guidance is the better description, what the measurement-and-power business is worth on its own, where the bear case is strong, and what my model says a share is worth.
Below is the scorecard of every pick I have published since launching this newsletter: 24 picks held longer than 30 days, an average gain of 40% each, and two out of three winners. Paid subscribers got each of those names on the day I bought them.