Artko Capital, an asset management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. For the fourth calendar quarter of 2021, an average partnership interest in Artko Capital LP was down 3.4% net of fees. At the same time, investments in the most comparable market indexes—Russell 2000, Russell Microcap, and the S&P 500—were up 2.1%, down 2.7%, and up 8.6%, respectively. For the calendar year of 2021, an average partnership interest in Artko Capital LP was up 19.4% net of fees. At the same time, investments in the aforementioned market indexes were up 14.8%, 19.3%, and 28.7%, respectively. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Artko Capital, in its Q4 2021 investor letter, mentioned Acorn Energy, Inc. (NYSE:ACFN) and discussed its stance on the firm. Founded in 1986, Acorn Energy, Inc. (NYSE:ACFN) is a Wilmington, Delaware-based technology consulting services provider with a $19.0 million market capitalization, and is currently spearheaded by its CEO, Jan Herman Loeb. Acorn Energy, Inc. (NYSE:ACFN) delivered a -22.22% return since the beginning of the year, while its 12-month returns are down by -18.33%. The stock closed at $0.49 per share on March 18, 2022.
Here is what Artko Capital has to say about Acorn Energy, Inc. (NYSE:ACFN) in its Q4 2021 investor letter:
“Acorn Energy (ACFN) – 11% of Portfolio; $0.30 cost basis/$0.60 current price
Much like Research Solutions, what originally attracted us to Acorn Energy and its only segment Omnimatrix is the very consistent and recurring revenue (ARR) nature of its base business, providing monitoring solutions for a customer base that is over 30,000 owners of backup electric generators, including 25 of Fortune 500 companies, which tend to fail when needed most. This is a low, $10 a month service, with a 95% renewal rate and as such almost every additional dollar of hardware sales adds to the high 80s gross margin ARR base of over $4.0mm.
Since we first invested in the stock in 2018, the company has delivered on its promise to grow revenues 20% annually and to reach segment profitability and holding company breakeven levels. While 2022 is still expected to be another ~20% growth year, it will be one that will be led by growth in hardware rather than in monitoring revenue, as a 3G sunsetting is expected to result in a higher than historical average churn of customer base, and a somewhat increased competitive environment to pick up those customers from Generac. We believe that Omnimatrix has an established competitive position with its dealer network that receives a cut of the monthly revenue, vs a one-time payment from the competition. The introduction of a new generation of products and continued expansion into other markets should also drive increased hardware sales into 2022, for a combined $8.7mm revenue.
While we have done well, at over a 100% return in this investment, including 60%+ in 2021, we believe there is substantial room for further triple-digit returns. While the company has a tiny market capitalization at $23mm ($21mm Enterprise Value) it is in a red-hot Internet of Things (IoT) space where revenue multiples for similar companies range from 3x to 7x. We believe reaching the $10mm revenue number would be an important milestone over the next 24 months, where the holding company should also generate $2mm plus in cash flow, including a completely unnecessary, $1mm in public company expense. We anticipate that at the higher revenue levels the company, that has no business being public, though with $70mm in NOLs, should be able to sell itself at the $1.20 to $1.50 range at mid-single digit revenue multiple/Free Cash Flow yield numbers and this continues to be our expectation.”
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Our calculations show that Acorn Energy, Inc. (NYSE:ACFN) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. Acorn Energy, Inc. (NYSE:ACFN) delivered a -18.32% 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.