If you are looking for the best ideas for your portfolio you may want to consider some of Greenhaven Road Capital‘s top stock picks. Greenhaven Road Capital, an investment management firm, is bullish on PAR Technology Corp (NYSE:PAR) stock. In its Q3 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on PAR Technology Corp (NYSE:PAR) stock. PAR Technology Corp (NYSE:PAR) is a provider of systems and service solutions for the hospitality industry.
On October 13, 2019, Greenhaven Road Capital had released its Q3 2019 investor letter. PAR Technology Corp (NYSE:PAR) was one of the Top 5 holdings of Greenhaven in Q3 2019. The stock has posted a return of 67% in the trailing one year period, outperforming the S&P 500 Index which returned 15% in the same period. This suggests that the investment firm was right in its decision.
Earlier this month, we published an article revealing Greenhaven’s bullish investment thesis on PAR Technology Corp (NYSE:PAR) stock in its Q3 2020 investor letter. This suggests that the investment firm has been bullish for a long time on PAR Technology Corp (NYSE:PAR).
Greenhaven’s fund posted a return of less than 1% in the third quarter of 2019, underperforming the S&P 500 Index which returned 1.7% in the same quarter. Let’s take a look at comments made by Greenhaven Road Capital about PAR Technology Corp (NYSE:PAR) in the Q3 2019 investor letter.
“PAR Technology (PAR) – Over the course of the quarter, we significantly increased our investment in PAR as I believe that the actions of management today will pay significant dividends in the future. In the case of PAR, seeking progress from the GAAP financials is a futile effort. The asset we want to own is the restaurant POS (point of sale) system, Brink, that remains buried under a defense contracting business and a hardware business that are currently far bigger.
Here is what we know: the new CEO, Savneet Singh, has only been on the job since the beginning of the year and has only had resources since April when PAR raised money through convertible debt. Hiring well and spending well takes time. Savneet has focused the company and laid the foundation for growth by investing resources in stabilizing the product, building a payments offering, announcing the exit of a small ancillary software business (SureCheck), and articulating that the defense and restaurant businesses should be separated (timing uncertain). He has also taken actions to improve the profitability of the hardware business through both staff reduction and growth, most recently paying less than 2X cashflow for a drive-through related asset that fits well with the existing portfolio of restaurant solutions. This acquisition provides more stability to the hardware business and makes it larger, which makes the hardware business easier to separate. While new installations for Brink software were uninspiring last quarter and are likely to be uninspiring this quarter, these results are consistent with a desire to fix the product and please their customers in the long term. The decision to slow growth and build a more solid foundation is exactly the type of decision I want our jockeys to make: some short-term pain for longer term benefit. Several large chains, including Panda Express, are in pilot with Brink. Coupled with announced wins like Dairy Queen, a path to doubling the installed base of Brink over the next 12-15 months remains intact.
Where is this all headed? Before becoming CEO of PAR, Savneet was trying to buy private software companies and build a “Berkshire of Software.” He ended up putting aside that project and joining PAR. While he was trying to acquire software companies for himself, he wrote an article “Building the Berkshire Hathaway of Software” (LINK) where he laid out his thinking:
“The software we focus on is the type of mission critical service that acts as the backbone of a business; where there is no benefit to switching and the product delivers far more value than it costs…… The beauty here is that so long as the software continues to get better, customers won’t leave, allowing the founder to have 98% of last year’s revenue come in on day 1 next year …before he/she has spent a dollar on sales and marketing… In summary, we are talking about a business that can keep its customers for decades, maintain high margins, can potentially raise prices AND find places to reinvest… That’s a Berkshire Business.”
It strikes me that an enterprise-wide POS system is exactly the type of mission-critical business Savneet was referring to.
Because the POS system is central to every transaction in a restaurant, it interfaces with more than a dozen other operational functions a restaurant operator must navigate such as inventory management, staffing, and loyalty tracking. PAR has the opportunity to buy, build, and partner in several of these adjacent functionalities and capture a portion of the economics. This quarter, the company is launching a payments module, which has been a larger source of profits for competitors than their software offerings. The acquisition opportunity would appear robust as well. If PAR can buy a small SAAS offering such as inventory management or labor management, integrate the offering, and then sell into their growing customer base, the combination of organic growth and acquisitions could yield very high growth rates for the next several years.
Putting the pieces together, PAR has a rapidly expanding customer base that can be monetized at significantly higher rates. The sale of the defense business can provide the “war chest.” There are well-funded competitors, the board may have a different vision, and building a business is difficult, but if Savneet is successful, we are not playing for just +15%.”
In Q1 2020, the number of bullish hedge fund positions on PAR Technology Corp (NYSE:PAR) stock decreased by about 33% from the previous quarter (see the chart here), so a number of other hedge fund managers don’t believe in PAR’s growth potential. Our calculations showed that PAR Technology Corp (NYSE:PAR) isn’t ranked among the 30 most popular stocks among hedge funds.
The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
Video: Top 5 Stocks Among Hedge Funds
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Disclosure: None. This article is originally published at Insider Monkey.