Don’t be afraid to make a bet on a small disruptor.

We first covered APT stock in May 2017 (Issue 242) at $2.51 in an issue where we were covering shadow banking and two nascent players, Afterpay and ZipMoney. The term buy now pay later wasn’t even used for these point of sale entrants, whose aim was to offer a better experience for customers and merchants.

They’ve certainly done that for shareholders! Back then its market cap was $450m, with net cash of $21m. The Square Inc purchase price is worth $40bn and Afterpay’s price is close to $127. There was a great deal of uncertainty at the time we covered it, but the lesson is to jump in on occassion with a small bet on a little stock in a fast growing industry.

It's often better to hold on when the going gets tough.

City Chic Collective was called Specialty Fashion when we first covered it. We liked the stock because it had a strong franchise and was growing its sales. Then trouble hit with the stock weighed down by 1100 Australia wide stores and too many brands. In late 2018/ early 2019 the company kicked out its management and restructured, selling most of those stores and brands to Noni-B, which is now called Mozaic Brands (MOZ). What has emerged is a slick online focussed retailer with a slimmer bricks and mortar presence of closer to 100 domestic stores targeting the relatively underserved market of plus size (14+) young women’s fashion in Australia, the US and Europe. The company is a leader in its market with an enviable digital presence. The lesson is that when a company falls on hard times, don’t sell! Hold on because often there is light and in this case, fashion retail gold.

Sometimes betting on one person can pay off

Think about this, when we first covered Northern Star, back in June 2012 (issue 19) the company’s market cap was just over $300m, it had one gold producing mine in the middle of WA - Paulsens – and it was led by a workaholic 37 year old Bill Beament, who has a background in underground mining contracting. We were impressed with Beament’s mining ability, but not his company’s communications. Consequently we saw an opportunity after it missed production guidance. We could see that this company had strong fundamentals - $85m in cash; and incentivised management. Two very potent combinations.

More often then not the time to buy is when everyone is selling.

This was the case with Nick Scali in October 2012, when the stock was trading at $1.40. Our view was that Nick Scali had the brand and balance sheet strength to take advantage of weak trading conditions. We expected earnings would increase from its store rollout program, lower rents and positioning itself across different price points. This would make it well placed to benefit when the inevitable upturn in the housing market occurred.

In a fast growing industry it often pays to back more than one horse.

When we covered nascent shadow banking stocks, Zip Money as it was known then stood out along side Afterpay because it's model was based on disruption at the point of sale for retail. The big market at play was millennials who were the great unbanked. Zip had a proprietary technology providing fast and easy online approval and was experiencing increasing adoptions from consumers and merchants. Similar to Afterpay, which we preferred because Zip is more like a wallet. In the event if you bet on both you would have done exceptionally well and if you had only bet on one, their returns speaks for itself.

Patience often pays off with founder led companies

Macquarie Telecom’s success seems inevitable now, but when we first covered it we wore quite a bit of pain for over 12 months. When we spoke to CEO David Tudehope a number of years ago he evinced frustration that his company’s transformation from a telecom reseller into a software as a service cloud operator wasn’t being reflected in a growing share price. The company’s model is capital intensive, but because of its founders, MAQ has rarely raised capital and it has invested heavily on customer service. That investment is still paying dividends, right now through growth because they’ve stopped paying them!