Argosy Investors, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be seen here. The fund’s 2021 performance was 24.3% in select accounts. The S&P 500 by comparison returned 28.7%. Argosy Investors ended the year with 33% of its portfolio in cash and equivalents and dipped as low as 15% at the end of the 2nd quarter last year. Otherwise, cash hovered between 25-35% of the total account value for the fund. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Argosy Investors, in its Q4 2021 investor letter, mentioned AgileThought, Inc. (NASDAQ: AGIL) and discussed its stance on the firm. Founded in 2004, AgileThought, Inc. is an Irving, Texas-based IT service management company with a $258.9 million market capitalization, and is currently spearheaded by its CEO, Manuel Senderos. AGIL delivered a 9.11% return since the beginning of the year, while its 12-month returns are down by -48.14%. The stock closed at $5.15 per share on March 08, 2022.
Here is what Argosy Investors has to say about AgileThought, Inc. in its Q4 2021 investor letter:
“AgileThought (AGIL/AGILW) has earned the unofficial distinction of declining fastest in the first 2 months of ownership of any stock I can remember owning. The shares are down nearly 50% in that span, so while it’s challenging to divorce price performance from the investment opportunity, I’ll try to do that the best I can. My research on AGIL led me to believe that it was possible to be Grid Dynamics 2.0. AGIL is an IT outsourcing provider with software development professionals throughout Central and South America serving mostly American clients. They believe they can grow at 20%+ per year for the next 3-5 years, similar to other successful IT outsourcer investments I’ve made in GDYN/DAVA/EPAM.
The factor I neglected to appreciate was their balance sheet was in worse shape than I appreciated, and information was publicly disclosed that they needed to raise significant money before year-end 2021 to repay certain indebtedness as part of an amendment to their debt agreement. They fulfilled this need late in 2021, raising $25 million at a price of $7.00 per share…when the share price was trading north of $9 the day before. Shares ended the day down 30%. Since then, the share price has declined further to a recent price of $4.69 as of the writing of this letter.
I estimate the current enterprise value at $334 million, although I’ll caveat that the capital structure is very complicated at this point. Estimated unlevered cash flow is $20 million, implying that the current valuation is about 20x 2022 unlevered cash flow. This is a low multiple compared to AGIL’s competitors that I’ve previously invested in. It’s possible that there will be additional dilution in order to pay off the remaining debt. Worst case, assuming they need to repay the rest of their debt in the near-term at even lower prices, they may need to issue 15 million more shares vs. current fully-diluted share count of 60 million. Despite my poor initial analysis, I believe there remains opportunity in the shares from here and may add funds at these levels.
Our calculations show that AgileThought, Inc. (NASDAQ: AGIL) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. AGIL was in 4 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 2 funds in the previous quarter. AgileThought, Inc. (NASDAQ: AGIL) delivered a -47.40% return in the past 3 months. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.