Tieton Capital Management

4700 Tieton Drive, Suite C
Yakima, WA  98908
(509) 965-6488

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December 21,2020

December 21, 2020 By Lora Leavenworth

Purchased Texas Capital Bancshares (TCBI):

  • Highly respected Dallas, Texas based business bank
  • Limited branch network relative to asset size
  • Texas economy, and Dallas metro specifically, remains one of most vibrant in nation
  • Company refocusing after couple years of losing their way
  • Problem loans falling, even in shadow of COVID Recession, as bank refocuses
  • Believe may have excess reserves for estimated COVID Recession losses
  • Stock price down nearly 60% from 2018 peak when purchased
  • Trading around 70% of book value and approximately 6x normalized earnings when purchased

Added to Geospace Technologies (GEOS):

  • Debt-free pioneering developer of seismic equipment for oil & gas industry and burgeoning border security market
  • Stock price under pressure during COVID’s weight on market
  • Stock price down with prospect for additional oil and gas reservoir monitoring orders improving while border security contract renewal likely drawing closer
  • Trading approximately half of book value at time of purchase

Trimmed Green Brick Partners (GRBK):

  • Quality return on capital focused homebuilder with low leverage
  • Operate in high population growth and housing growth markets – primarily Dallas & Atlanta
  • Direct beneficiary of housing shortage caused by lower interest rates and preference to own a home during pandemic
  • Management team effectively executing
  • Stock price up nearly 100% this year
  • Second time this year took money off table to redeploy to companies with higher forecasted upside

 

Filed Under: Portfolio Change Updates

February 27, 2020

March 2, 2020 By Lora Leavenworth

Purchased Bonanza Creek Energy (BCEI): 

  • Colorado oil & gas producer
  • CEO joined the company nearly two years ago
  • Operating discipline and production growth have been remarkable under new leadership
  • Anticipate production continuing to grow at least 15% due to strong property position
  • Joint venture with Anadarko could accelerate production growth in two years
  • If oil prices rise, will directly benefit cash flow
  • Purchased initial position in early January
  • Stock price declined with falling oil prices in response to coronavirus news
  • Used opportunity to complete purchase of full portfolio weighting
  • Trading at less than 50% of book value and under 4x estimated earnings

Purchased Green Brick Partners (GRBK): 

  • Home builder in fast growing metropolitan areas
  • Expect increased number of selling communities leading to accelerated growth
  • Lower interest rates should benefit sales activity
  • Expanding into entry level homes, initially in Dallas, then Houston
  • Will likely enter additional high population growth markets
  • Trading under 10x this year’s consensus earnings at time of purchase

Added to Apogee Enterprises (APOG): 

  • Leading commercial glass and frame manufacturer
  • Position was trimmed in third quarter after good earnings led investors to push stock price up
  • Stock price dropped in December following a temporary pause in the framing segment
  • Met with management day earnings reported and concluded hiccup will be short-lived
  • Increased holdings approximately $10 below price trimmed in Q3
  • Trading around 11x next year’s estimates at time of purchase

Added to Fluent, Inc. (FLNT): 

  • Digital marketing services company
  • Earnings weakness in third quarter caused by higher costs from new initiatives and a revenue slowdown management said reversed by mid-October
  • Stock price fell when third quarter earnings were reported
  • After meeting with management in New York chose to purchase additional shares
  • Early January preannounced strong Q4 results and stock price jumped

Added to TriState Capital Holdings (TSC): 

  • Novel bank and asset management organization with impressive leadership team
  • One of most innovative, efficient, branch-free banking models we have evaluated
  • Anticipate exceptional loan growth will continue in their lending niches
  • Unique lending categories with incredibly low losses
  • Leading deposit growth generating low cost funding source
  • Searching for accretive money management acquisitions to further build recurring revenues
  • Foresee slower expense growth, leading to earnings growing faster than revenues
  • After initial purchase stock price moved up due to above consensus third quarter earnings
  • Stock price recently declined when an original private equity owner sold their shares
  • Used resulting stock price decline to purchase additional shares to full weighting
  • Trading at approximately 12x this year’s earnings estimates and 1.1x book value

Sold Barrett Business Services (BBSI): 

  • Outsourced human resources provider and consultant for small and medium sized businesses
  • Management executing strategy
  • Substantially increased efficiency and expanded margins over last two years
  • Stock price rose following strong first half results
  • Forecasted upside less than portfolio average
  • Previously trimmed to create cash for companies with higher anticipated upside
  • Remaining shares sold

Sold Helix Energy Solutions (HLX): 

  • Own & operate specialized offshore oil & gas well intervention vessels
  • Management executing business plan
  • Our research identified three important contracts ending next year
  • Concerned contract renewals will be at lower prices than current contract rates
  • Trimmed early last year to mitigate future risk
  • Share price now higher; sold remaining shares to generate cash for Bonanza Creek purchase

Sold SandRidge Energy (SD): 

  • Mid-continent oil & gas producer
  • Small weighting in portfolio
  • Were waiting for indicators new Chief Executive Officer would transform company
  • CEO departed less than a year after joining company
  • Prior to departure announcement, CEO involved in acquisition discussions to grow business
  • Sold company on day CEO departure was announced

Trimmed Regional Management (RM): 

  • Small loan consumer lender
  • Strong stock price increase led Regional to be one of largest portfolio weightings
  • New loan loss accounting rule may provide a headwind during 2020 transition
  • Combination higher stock price with loss accounting uncertainty led us to trim weighting

 

 

Filed Under: Portfolio Change Updates

April 18, 2019

April 22, 2019 By Lora Leavenworth

Purchased Myriad Genetics (MYGN): 

  • Leading provider of genetic testing
  • Successfully owned company in the past (sold last year)
  • Stock price declined nearly 40% from peak, after sale
  • Anticipate widespread reimbursement for novel depression test
  • Possible doubling of existing breast cancer testing market
  • Growth and expanded market potential of recently acquired prenatal genetic testing company
  • Potential for first-ever melanoma test approval
  • Near-term and multi-year developments could propel earnings more than four times higher than this year’s results

Added to Trecora Resources (TREC): 

  • Specialty petrochemical and wax producer
  • Completed a multi-year capital expansion program
  • Anticipating management changes will lead to more profitable utilization of their assets
  • Free cash flow generation should be significant with completion of plant expansion
  • Monetization of non-core copper and zinc mine could generate large cash windfall
  • Trading near book value
  • Added to portfolio in anticipation of factors above culminating in revaluation of company

Sold Electro Scientific (ESIO): 

  • Supplier of laser-based micro-machining primarily for printed circuit boards & semiconductors
  • Approximately two weeks after portfolio purchase in fourth quarter company announced sale to MKS Instruments for $30 cash per share – nearly double our purchase price
  • Sold half position shortly after announcement
  • Sold remainder of position this year

Sold First Internet Bancorp (INBK): 

  • Internet based Midwest commercial bank
  • Successfully growing loan portfolio
  • However, flattening yield curve squeezing margins
  • Upside relative to alternatives decreased due to less robust earning assumptions
  • Sold to generate cash for opportunities with greater upside

Trimmed Barrett Business Services (BBSI): 

  • Outsourced human resources provider and consultant for small and medium sized businesses
  • Management executing business plan
  • Stock price rose following strong Q4 results and 2019 guidance
  • Consequently, forecasted upside decreased to less than portfolio average
  • Proceeds used to repurchase Myriad Genetics with substantially more expected upside

Trimmed Helix Energy (HLX): 

  • Provide specialized well intervention vessels for offshore oil & gas industry
  • Management executing business plan
  • Our research identified three important contracts ending in two years
  • Concerned contract renewals will be at lower prices than current contracts
  • Trimmed to mitigate future risk

Trimmed Steelcase, Inc. (SCS): 

  • Leading office furniture designer and manufacturer
  • Catalysts tied to new products, European sales team improvement and European cost reductions working
  • Stock price moved up as catalysts executed
  • Higher stock price led to lower upside relative to overall portfolio
  • Position trimmed to create cash for companies with higher anticipated upside

Filed Under: Portfolio Change Updates

December 4, 2018

December 4, 2018 By Lora Leavenworth

Purchased Electro Scientific Industries (ESIO):

  •  Supplier of laser-based micro-machining primarily for printed circuit boards & semiconductors
  • Known of company for a couple decades
  • Previously wasn’t comfortable with direction of company
  • New management demonstrating brilliant strategy & turnaround
  • Trading at less than 7x this year’s earnings at time of purchase
  • Approximately two weeks after purchase company announced acquisition by MKS Instruments for $30 cash – nearly double our purchase price
  • See note below regarding trim after announcement

Purchased Motorcar Parts of America (MPAA): 

  • Provide remanufactured automotive aftermarket electrical components
  • Strong relationships with parts retailers should lead to increased market share
  • Anticipate company will enter new categories and geographies
  • Aging automotive fleet is likely tailwind
  • Material increase in earnings anticipated from new contract wins
  • Trading approximately 10x current year’s earnings estimates when purchased

Purchased Fluent, Inc. (FLNT): 

  • Performance marketing services company
  • Growing, differentiated database of 200 million consumers
  • Spun-off related entity earlier this year
  • Management now laser focused on increasing revenue growth
  • Anticipate revenue growth will lead to margin expansion
  • Trading near book value when purchased
  • Trading at less than 13x next year’s consensus estimates at time of purchase
  • Believe consensus earnings estimates are low

Added to Barrett Business Services (BBSI): 

  • Outsourced human resources provider for small and medium sized businesses
  • Trimmed when stock price moved up earlier this year
  • Management executing business plan
  • Stock price fell with confusion around Q2 results
  • Consequently, forecasted upside increased
  • Anticipating clarity and solid results, added to holdings before reported Q3
  • Were rewarded for anticipating correctly

Sold Myriad Genetics (MYGN): 

  • Leading provider of genetic testing
  • Catalysts developed nicely
  • Made strategically smart acquisitions
  • Investors recognizing Myriad’s competitive strengths and opportunity
  • Held shares longer than typical value manager due to the strong fundamentals
  • Allowed Myriad to reach higher valuation
  • Hence, upside at bottom end of portfolio
  • Sold to purchase Electro Scientific and Fluent (details above)

Sold Super Micro Computer (SMCI): 

  • Leading developer computer server technology and applications
  • Investigative Bloomberg Business Week article purported company’s motherboards had malicious Chinese spy chip implanted
  • Whether true or not, concerned SMCI customers may pause before buying potentially infected boards, causing revenue headwinds
  • With increased business risk, shares were sold out of the portfolio

Trimmed Electro Scientific Industries (ESIO): 

  • Supplier of laser-based micro-machining primarily for printed circuit boards & semiconductors
  • Approximately two weeks after purchase company announced acquisition by MKS Instruments for $30 cash, nearly double our purchase price
  • Sold half position

Filed Under: Portfolio Change Updates

September 14, 2018

September 14, 2018 By Lora Leavenworth

Added to Atlas Financial (AFH): 

  • Niche commercial vehicle insurer
  • Strong belief in innovative management team
  • Trading less than 5x management’s guidance for 2018 earnings (rarity for non-cyclical) at time of purchase
  • Stock price drifted downward after previously raising weighting to 5%
  • Took opportunity to purchase more shares and increase weighting back to 5% – largest weighting will buy

Added to ChromaDex (CDXC): 

  • Dietary supplement and ingredient supplier
  • Additional research supporting NIAGEN, their primary ingredient
  • Increasing number of active studies (over 150) by universities & institutes
  • Building distribution relationships around the globe
  • Anticipate new ingredient supplier relationships – possibly quite meaningful
  • Share price drifted after large spike last year
  • Yet, fundamentals incrementally improving
  • Therefore, added to weighting

Added to Customers Bancorp (CUBI): 

  • Commercial bank primarily serving the Washington, D.C. to Boston corridor
  • Spinning off disbursements and mobile bank business, called BankMobile
  • Process taking longer than anticipated
  • Investors appear to the focusing on the near-term glitches, rather than value of primary banking franchise
  • Trading less than book value
  • Excluding BankMobile, Customers is trading at less than 10x this year’s earnings
  • Increased weighting anticipating eventual successful BankMobile monetization or shuttering business, at which point the core banking franchise value should drive share price 

Trimmed Enova International (ENVA): 

  • Online subprime lender with operations in U.S., U.K. and Brazil
  • Management masterfully executing business plan
  • Surprised investors with strong income leverage in first quarter and big earnings beat
  • Stock price responded quite favorably, then continued to move up into Q2 release
  • Forecasted upside reduced as a result
  • Trimmed to raise cash for alternatives with greater forecasted upside

Trimmed Myriad Genetics (MYGN): 

  • Leading provider of genetic testing
  • Catalysts developing nicely
  • Made strategically smart acquisitions
  • Investors appear to be recognizing Myriad’s competitive strengths and opportunity
  • Have held shares longer than typical value manager might due to the strong fundamentals
  • Therefore, shares trading at higher valuation than normal for portfolio
  • Believe more money can be made in another company
  • Consequently, trimmed position

 

Filed Under: Portfolio Change Updates

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