Greystone Capital Stick to the Sidelines on MiX Telematics (MIXT)

Greystone Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. Greystone is a privately held investment company. The investment firm seeks to simplify and add value by identifying opportunities in good and bad markets. You should check out Greystone Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Greystone Capital highlighted a few stocks and MiX Telematics Ltd (NYSE:MIXT) is one of them. MiX Telematics Ltd (NYSE:MIXT) is a software company. Year-to-date, MiX Telematics Ltd (NYSE:MIXT) stock lost 25.1% and on August 18th it had a closing price of $9.74. Here is what Greystone Capital said:

“In early April, clients may have noticed shares of MiX Telematics (MIXT) in their accounts during one week only to see them sold shortly after. During the quarter, we entered and quickly exited a position in MIXT, for the simple reasons of not wanting to own shares in a business quite levered to the oil and gas industry given the current industry dynamics. In a fragmented industry with few large scale players, MIXT is a solid company with a strong product offering, a long track record of success, and an founder/CEO who is very much aligned with shareholders, having navigated the business through multiple cycles successfully. MIXT is currently available at what I feel is a cheap price, and their high-quality customer base, recurring revenue profile and long runway for growth most likely means the business will continue to perform well into the future. With that said, MIXT has a large exposure to the oil and gas industries through their customer base, especially in the US, where these customers represent the bulk of MiX’s highest margin revenue segment, or ‘large fleet’ customers. I believe we are at a cyclical trough for many of these subscribers (representing a large chunk of revenues), and with so much uncertainty and carnage in the energy industry right now, I believe we will most likely see major fleet contractions moving forward, and a return to cyclical revenue/operating income lows similar to 2015-16. I realized very quickly after purchasing our shares that I had no special insight into whether the current situation surrounding oil prices is not as bad, different, or worse than 2015-16, and thought it would be best to watch things play out from the sidelines. Timing was on our side, as we did not experience any permanent losses of capital and broke even on the short-term trade.

I’m not able to remember a time when I’ve entered and exited a position so quickly following the completion of my research/due diligence process, but in the case of MIXT I believe it made sense to do so from a risk management standpoint. I will be monitoring the situation closely over the next 12-18 months and would be happy to re-visit an ownership position at lower prices or when I feel as though there is more clarity surrounding a large portion of MiX’s customer base. Clients were emailed a more detailed writeup outlining the opportunity and my thought process behind initially making the investment. The writeup as an appendix to this letter will also be available on our website.”

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Yesterday, we published an article revealing that Bonsai Partners is betting on MiX Telematics Ltd (NYSE:MIXT) stock. The investment firm hold a small position in MIXT stock due to decline in oil prices.

In Q1 2020, the number of bullish hedge fund positions on MiX Telematics Ltd (NYSE:MIXT) stock decreased by about 25% from the previous quarter (see the chart here), so a number of other hedge fund managers believe in MiX Telematics’s downside potential. Our calculations showed that MiX Telematics Ltd (NYSE:MIXT) isn’t ranked among the 30 most popular stocks among hedge funds.

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Disclosure: None. This article is originally published at Insider Monkey.