Kingsway Financial Services Inc. (KFS): A Bull Case Theory

We came across a bullish thesis on Kingsway Financial Services Inc. (KFS) on The Hermit’s Substack. In this article, we will summarize the bulls’ thesis on KFS. Kingsway Financial Services Inc. (KFS)’s share was trading at $13.06 as of 5^th June.

KFS is redefining the search fund model by offering a scalable, institutional approach that combines permanent capital, centralized support, and entrepreneurial autonomy. Acting as both a fund-of-funds and an accelerator, KFS empowers primarily MBA-trained operators to acquire and lead small businesses, addressing succession challenges for retiring owners. By integrating search, acquisition, and operational transition under one roof, KFS removes much of the friction that traditionally plagues this asset class.

While search funds exhibit failure rates on par with venture capital, roughly 50% don’t return original capital; the returns on successful deals remain highly attractive. In 2024, global search funds posted a 35.1% IRR, with exited deals averaging 42.9%, thanks to a favorable supply-demand imbalance in quality deal flow.

KFS reduces risk through a disciplined underwriting process, capping purchase multiples and maintaining a 50/50 debt-to-equity structure. Operators are incentivized with competitive search-phase compensation and significant carry tied to IRR, which is driven by purchase price, exit valuation, profitability growth, leverage, and holding period.

Currently, KFS owns a growing portfolio of operating businesses and supports three active searchers, with plans to expand its talent pipeline. Each acquisition is structured as a separate entity with its balance sheet, balancing autonomy and accountability. The company’s use of permanent equity capital allows for longer holding periods and the flexibility to pursue roll-ups or reinvest in outperforming operators.

At its core, KFS believes alpha lies in focused sector selection and decentralized execution, identifying asymmetric industry opportunities and enabling operators to compound value over time. This structure positions KFS as a durable compounder with multiple layers of upside.

Previously, we covered a bullish thesis on Morningstar (MORN) by Flyover Stocks on Substack in May 2025, which also operates in the Financial Services industry. While MORN leans on proprietary financial data, subscription economics, and a 40-year reputation for transparency, KFS focuses on innovating the search fund model through structured autonomy and disciplined underwriting. MORN is a quiet leader in financial information; KFS aims to be the same in small business acquisition. Each represents a differentiated bet on scalable, operator-driven excellence.

Kingsway Financial Services Inc. (KFS) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held KFS at the end of the first quarter which was 5 in the previous quarter. While we acknowledge the risk and potential of KFS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.