Baron Funds, an asset management firm, published its “Baron Small Cap Fund” second quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.37% was delivered by the fund’s institutional shares for the Q2 of 2021, trailing the S&P 500 Index, which appreciated 8.55% and modestly outperforming the Russell 2000 Growth Index which rose 3.92% for the same period. You can take a look at the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of Baron Funds, the fund mentioned Janus International Group, Inc. (NYSE: JBI) and discussed its stance on the firm. Janus International Group, Inc. is a Georgia, United States-based turn-key self-storage building solutions manufacturer with a $2.08 billion market capitalization. JBI delivered a 40.90% return since the beginning of the year, while its 12-month returns are up by 50.15%. The stock closed at $15.01 per share on August 31, 2021.
Here is what Baron Funds has to say about Janus International Group, Inc. in its Q2 2021 investor letter:
“We initiated a new position in Janus International Group, Inc. when the company came public by merging with SPAC Juniper Industrial Holdings. Janus is the leading global manufacturer and supplier of turn-key self-storage solutions, including steel roll-up doors, hallway systems, relocatable storage units, and door automation technologies. Janus has over 50% market share, a full suite of value-add products, and a nationwide manufacturing and installation network to serve the industry’s need for new capacity and massive renovation (over 60% of installed base is over 20 years old). Janus’s dominant market position and entrenched customer base lead to high barriers to entry, lucrative opportunities to cross-sell ancillary products and services, and an attractive financial model with around 23% average revenue growth since 2010, over 25% EBITDA margins, and strong free cash flow stemming from its asset-light model. Management aspires to double revenues over the next several years, driven by capturing its share of new self-storage construction, increasing penetration of ancillary self-storage offerings (renovation, external storage), accelerating growth in several international markets, and share gains in a nascent commercial business. Janus is the first to market with a self-storage smart lock solution called Noke Smart Entry. We believe this is the future for the self-storage industry, and Janus has a unique ability to drive penetration. This is estimated to be a $1 billion potential revenue opportunity in time.
We believe organic growth will be supplemented by acquisitions, as the company has a long history of finding attractive assets, and recently added Board members with extensive M&A experience at Honeywell. The company has a near-term pipeline of $500 million incremental revenue (40 targets) compared to $550 million revenue last fiscal year. We think the stock could reach the low $20s over the next several years, driven by 10% organic growth, continued M&A supported by a strong balance sheet and free cash flow, upside penetration of proprietary Noke technology, and sustaining its current valuation multiple, which we think has upside.”
Photo by JOSHUA COLEMAN on Unsplash
Based on our calculations, Janus International Group, Inc. (NYSE: JBI) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. JBI was in 23 hedge fund portfolios at the end of the first half of 2021, compared to 27 funds in the previous quarter. Janus International Group, Inc. (NYSE: JBI) delivered a 12.19% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
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Disclosure: None. This article is originally published at Insider Monkey.