Merion Road Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. Merion Road Capital’s long-only large-cap portfolio returned 20% for the year. While this is a strong result on an absolute basis, it lagged the S&P. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Merion Road Capital Management, in its Q4 2021 investor letter, mentioned Leatt Corporation (NYSE: LEAT) and discussed its stance on the firm. Leatt Corporation is a South Africa-based motorsports designing company with a $153.2 million market capitalization. LEAT delivered a -15.38% return since the beginning of the year, while its 12-month returns are up by 189.47%. The stock closed at $28.00 per share on February 14, 2022.
Here is what Merion Road Capital Management has to say about Leatt Corporation in its Q4 2021 investor letter:
“The small cap portfolio increased 42% for the year, our best since inception. The largest contributor was one of our smaller investments from 2020, Leatt (“LEAT”), that was up 340% during the year and is up over 10x since our initial purchases. LEAT is a niche provider of safety accessories for moto‐cross and downhill biking enthusiasts. When I initiated the position, I saw an off the radar company that was poised for a step‐change in revenue and earnings growth. Additional product price points, new product releases (the company now touts being a head‐to‐toe company), and expanded category reach (initially they were just a moto company) all served as upside optionality. Given covid tailwinds and the company’s attractive valuation, I thought our downside was limited. Potential catalysts included increasing shareholder recognition and an uplisting / index inclusion. While there were a few red flags, as is often the case amongst nano‐cap stocks, these were overcome by management’s transparency, the historic lack of dilution, and a strong margin profile at just $30mm LTM revenue.
LEAT has executed superbly over the past 6 quarters with LTM revenue more than doubling to $62mm with a corresponding increase in margins. Importantly a large part of these gains has been driven by company specific performance. LEAT is trading at about 1.8x 2021 revenue and 7x EBITDA. These are attractive levels given comparable outdoor valuations and the company’s normalized growth trajectory.”
Photo by Alina Rubo on Unsplash
Our calculations show that Leatt Corporation (NYSE: LEAT) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. LEAT was in 1 hedge fund portfolio at the end of the third quarter of 2021. Leatt Corporation (NYSE: LEAT) delivered a -18.88% 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.