If you are looking for the best ideas for your portfolio you may want to consider some of Greenhaven Road Capital's top stock picks. Greenhaven Road Capital, an investment management firm, is bullish on Kaleyra Inc. (NYSEAMERICAN:KLR) stock. In its Q4 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Kaleyra Inc. (NYSEAMERICAN:KLR) stock. Kaleyra Inc. (NYSEAMERICAN:KLR) is a software company. The stock is down 50.6% since the Greenhaven Road Capital's pitch in February 2020, which suggests that the investment firm was wrong in its decision. On a year-to-date basis, Kaleyra Inc. (NYSEAMERICAN:KLR) stock has fallen by 47.8%.
On February 15, 2020, Greenhaven Road Capital had released its Q4 2019 Investor Letter. Greenhaven Road Capital said that Kaleyra Inc. (NYSEAMERICAN:KLR) is poised to grow in 2020.
Greenhaven Road Capital fund returned approximately 2% net in the fourth quarter and approximately 15.5% for 2019. The investment firm noted that its 2019 returns were below its benchmark the Russell 2000 Index.
Let’s take a look at comments made by Greenhaven Road Capital about Kaleyra Inc. (NYSEAMERICAN:KLR) in the letter.
"Kaleyra, Inc. (KLR) Common Stock / Puts / Warrants – Our ownership of Kaleyra is complicated and different from anything you own anywhere else in your portfolio. I would argue it is “good different.” In the last letter, I discussed an investment where we would make money if a transaction was consummated. The investment was GIG Capital, a Special Purpose Acquisition Company (SPAC), which, upon the closing of the transaction, assumed the name of the acquired company, Kaleyra.
Our partnership negotiated a deal with the company to not tender our rights at an implied share price of $10, but instead to wait and receive the right – but not the obligation – to sell our shares back to the company at prices ranging from $11 to $11.70 over the next several months. Of course, if prices rise further, we can sell in the open market rather than back to the company.
The headline is that we have effectively guaranteed a profit and have the potential to make very attractive returns if the underlying stock performs. Heads we make a nice return, tails we make a very nice return, with limited to no downside and substantial upside. Assuming the company does not go bankrupt (to which I assign a very low probability), we have locked in a profit and are playing with “house money.”
Kaleyra is a Europe-based, U.S.-listed technology company that provides a secure cloud communications platform for enterprises. They have over 3,000 customers who last year used their platform to send 25 billion text messages and transmit over 2 billion phone calls. A simple use case example would be a bank that sends a text message to an account holder for each transaction or log-in. Customers include Amazon, Uber, and several financial firms. Their largest competitor is Twillio, which is also a customer. In addition, the company has an interesting new initiative with AT&T where it will maintain a registry of approved corporate SMS senders on the AT&T network. No single customer accounts for more than 15% of revenue.
The real question for our investment at this point is: Can shares appreciate above $11.70? The current share price is $8.40, which implies a valuation of 1.5X revenue. This is a significant discount to its peers (Twillio is at 9X revenues and Sinch, a more relevant comparable, is just under 3X). The investment bank Cowen has an $18 price target on KLR shares and Northland has a target of $17. We are effectively getting paid to look at the next three earnings releases while not assuming the risk of a price decline. Kaleyra is profitable, and grew revenues in excess of 40% last quarter. A share price in the teens does not appear wildly implausible with a modicum of positive news."
[caption id="attachment_394355" align="aligncenter" width="400"] Production Perig/Shutterstock.com[/caption]
In Q1 2020, the number of bullish hedge fund positions on Kaleyra Inc. (NYSEAMERICAN:KLR) stock increased by about 40% from the previous quarter (see the chart here), so a number of other hedge fund managers seem to agree with Kaleyra's upside potential. Our calculations showed that Kaleyra Inc. (NYSEAMERICAN:KLR) isn't ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds' poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
At Insider Monkey we scour multiple sources to uncover the next great investment idea. There is a lot of volatility in the markets and this presents amazing investment opportunities from time to time. For example, this trader claims to deliver juiced up returns with one trade a week, so we are checking out his highest conviction idea. A second trader claims to score lucrative profits by utilizing a "weekend trading strategy", so we look into his strategy's picks. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. We recently recommended several stocks partly inspired by legendary Bill Miller's investor letter. Our best call in 2020 was shorting the market when the S&P 500 was trading at 3150 in February after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:
Disclosure: None. This article is originally published at Insider Monkey.