I want to hold a parade for the owners of Unifi - UFI. Does anyone know how to organize a parade? I want jugglers, elephants, and marching bands. Do you need a permit?
The Grand Marshall of my imaginary parade will be Bill Hench, the manager of the First Eagle Small Cap Opportunity Fund - FESCX. According to Morningstar, he first owned UFI in November of 2021 when the stock was over $20, now it is $8. Too much apparel inventory has hurt recent profitability. UFI makes their polyester yarn out of recycled plastic. Many famous apparel brands have committed to using 100% recycled fiber by 2025.
Is UFI an investable idea?
The market cap is only $140 million. UFI is not covered by a single one of those bastards loosely called ‘Wall Street firms”. They have better things to do. Who wants to pay 40% of book value, and 40% EV/Sales, for a company with interesting prospects, when you chase after NVIDIA at valuations I cannot even comprehend.
The Seeking Alpha write-ups are, at best, reasonable descriptions of the company, but not really very helpful.
The company has a slick 20+ page presentation that gives you the basics. I still have questions about competitors and access to recycled bottle supply that are not answered by the presentation.
Net debt is a revolver of about $100 million, with another $45 million available, but the details of the credit agreement make my head spin very quickly.
Mr. Hench of FESCX seems to be a believer. He owns plenty of other small cap stocks I respect. Is that enough?
Insiders own 20%+ of the stock. Most of that is 87 year old Ken Langone. Mr. Langone was involved in the startup of Home Depot. He was once on the boards of General Electric and Yum Brands. He is a major Republican, and Trump, donor. Is any of that a positive or negative? The son of former Watergate prosecutor Archibald Cox is also director and shareholder.
A group called Inclusive Capital Partners owns 10.6%. The are a San Francisco based fund that makes socially responsible investments.
A hedge fund called Azarias Capital Management has 5% of their assets invested in UFI. A quick look through their info shows some folks with lots of small cap investing experience. They own some very interesting stocks. I consider this holding a significant positive. According to a website called WhaleWisdom, they have owned UFI since Q4, 2021.
UFI bought back 500,000 shares last at about $14/share in mid-2022. The company has an open plan to buy another $38 million.
The 10-K has long paragraphs about trade rules and restrictions that not even a supreme being could understand. Maybe Mr. Langone thought he could get ‘the Don” to write the trade rules in his favor. Maybe the trade rules do favor UFI, but a bad inventory cycle has clouded the picture.
Investing in beaten up small caps like UFI is a very difficult business. Those who can do it deserve our respect and admiration. They really deserve a parade. For right now my decision is UFI is too complex to be an investable. That is a pure judgement call. Generalists have to invest in what they can understand. Reasonable people might disagree. The valuation is spectacular, the growth prospects are believable, and the balance sheet is ok. Smart folks own the stock. I need a simpler story.