Report by Kailash Capital Research

Last Apr, KCR highlighted the remarkable opportunities in micro cap stocks. Their portfolio was a group of ignored and overlooked companies that typically had prodigious cash-flows and healthy growth runways, and despite delivering an impressive 21% return, KCR continues to source wildly mispriced (too cheap) stocks. Their Micro Cap Model Portfolio has a FCF Yield of 10% vs. the Russell 1000 Core ETFs’ holdings FCF Yield of <3%; suggesting powerful upside returns with a much higher margin of safety than the expensive and concentrated large cap index funds. A recent addition is ScanSource, which has transformed itself into a leading hybrid solutions provider by combining traditional technology hardware with cloud-based solutions. While headwinds have hampered sales recently, SCSC is generating solid cash flow and KCR thinks the stock can potentially double.

Technology

Report by Corto Capital Advisors

Over the first nine months of its fiscal year, SCSC has experienced softening demand for tech products, macro weakness, elongated sales cycles, muted large enterprise projects and lower sales of barcoding, mobility and POS products. In the most recent quarter, the company’s networking hardware sales also rolled over as customers are still digesting excess prior-period product shipments. Despite these headwinds, shares of SCSC are up >50% over the last year, significantly outperforming the market as well as the company’s key vendors. Corto Capital sees 40%+ downside on multiple compression and the potential for lower than expected revenue guidance for the upcoming fiscal year.