Alta Fox Capital, an investment management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. In Q1 2022, the Alta Fox Opportunities Fund (“the Fund”) produced a gross return of -11.71% and a net return of -11.91%. The Fund’s average net exposure during the quarter was 82%. Since its inception in April 2018, the Fund has produced a gross return of 561.70% and a net return of 371.16% compared to the S&P 500’s return of 84.18% and the Russell 2000’s return of 42.39%. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.
In its Q1 2022 investor letter, Alta Fox Capital mentioned XPEL, Inc. (NASDAQ:XPEL) and explained its insights for the company. Founded in 1997, XPEL, Inc. (NASDAQ:XPEL) is a San Antonio, Texas-based protective films and coatings provider with a $1.3 billion market capitalization. XPEL, Inc. (NASDAQ:XPEL) delivered a -30.90% return since the beginning of the year, while its 12-month returns are down by -23.90%. The stock closed at $47.18 per share on May 04, 2022.
Here is what Alta Fox Capital has to say about XPEL, Inc. (NASDAQ:XPEL) in its Q1 2022 investor letter:
“XPEL, Inc. (NASDAQ:XPEL): XPEL has fallen 60% from all-time highs and now trades at 16x Alta Fox 2023 estimated EPS. XPEL was one of Alta Fox’s inaugural portfolio holdings and we hold the company’s CEO, Ryan Pape, in the highest regard. He is an incredible value creator that took a business on the verge of bankruptcy, funded it in desperate times on his own credit card, and has built an incredible business. When I had a chance to first meet with Pape early in our diligence process several years ago, he gave me a tour of their warehouse. Pape knew every worker on a first name basis, and it was clear that every employee at XPEL deeply respected him. Under Ryan’s tenure, XPEL has been over a 100-bagger, making it one of the best performing stocks in the world.
The paint protection film (“PPF”) market remains in early innings of penetration – we estimate that PPF is applied to ~5% of U.S. luxury vehicles and is applied on less than 2% of U.S. total vehicles. Not only do we believe that PPF penetration for luxury vehicles will multiply from current levels over the next decade, but we believe that PPF usage will continue to expand to other non-luxury vehicles as well. Moreover, PPF usage is not limited to just cars. Experts estimate that the residential/commercial PPF/tint market could be just as large, if not larger than the potential PPF auto market. We believe XPEL is best positioned to continue to gain market share in the rapidly growing PPF market due to its best-in-class brand, product, and PPF application software.
XPEL’s stock price has been cut in half in the last 12 months as its NTM PE multiple has compressed from a peak of 60x+ to 18x FY23. Additionally, supply chain headwinds have negatively impacted auto production and have resulted in empty dealership lots and a lack of new vehicles needing PPF. As a result, organic sales growth began to decelerate sequentially throughout the 2H of 2021. However, we believe a reacceleration is just around the corner. OEMs are citing continued improvement in semiconductor availability and vehicle deliveries continue to improve. Even the U.S. auto SAAR was up 11% q/q. As vehicle unit sales at retail begin accelerating and inventory levels at dealers begin to build, XPEL should see organic growth accelerate this year and next year as it benefits from pent up auto demand that will take many years to work through. Meanwhile, XPEL has taken price double digits and is renegotiating its manufacturing terms with its main supplier. We believe the net result of these efforts will be a return to 20-30% top-line growth with gross margins expanding from 35% in Q4 2021 to 40%+ by Q4 2022.
We believe 16x FY23 PE is far too cheap for a business growing topline 20%+ a year in early stages of TAM penetration exhibiting significant operating leverage with attractive reinvestment opportunities and a best-in-class CEO.”
Photo by Lenny Kuhne on Unsplash
Our calculations show that XPEL, Inc. (NASDAQ:XPEL) fell short and didn’t make it on our list of the 30 Most Popular Stocks Among Hedge Funds. XPEL, Inc. (NASDAQ:XPEL) was in 20 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 22 funds in the previous quarter. XPEL, Inc. (NASDAQ:XPEL) delivered a -22.88% return in the past 3 months.
In September 2021, we also shared another hedge fund’s views on XPEL, Inc. (NASDAQ:XPEL) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.
Disclosure: None. This article is originally published at Insider Monkey.
