JDP Capital Management, an investment management firm, published its second quarter 2021 investor letter – a copy of which can be downloaded here. A portfolio return of 7.26% was recorded by the fund for the second half of 2021, underperforming its S&P 500 benchmark that delivered a 15.25% return for the same period. You can view the fund’s top 5 holdings to have an idea about their top bets for 2021.
In the Q2 2021 investor letter of JDP Capital Management, the fund mentioned DIRTT Environmental Solutions Ltd. (NASDAQ: DRTT), and discussed its stance on the firm. DIRTT Environmental Solutions Ltd. is a Calgary, Canada-based highly customized interior manufacturer, that currently has a $388.7 million market capitalization. DRTT delivered a 85.83% return since the beginning of the year, extending its 12-month revenues to 306.19%. The stock closed at $4.59 per share on July 16, 2021.
Here is what JDP Capital Management has to say about DIRTT Environmental Solutions Ltd. in its Q2 2021 investor letter:
“DIRTT Environmental Solutions Ltd. (NASDAQ: DIRTT and TSX: DRT.TO) is a small-cap Canadian designer and manufacturer of pre-fabrication interiors for commercial buildings in North America. The company uses a virtual reality platform to engineer interior building infrastructure with a high degree of precision and cost efficiency. Projects are sold through a network of third-party dealers. Video: What is DIRTT Environmental?
JDP initially invested in DIRTT in March 2020 at a price of $1.15 per share (USD). In the first half of 2021 the stock was up 78%, and 280% overall from our initial investment.
DIRTT was introduced to us by Shaun Noll who is one of the best investors I know. Shaun has a unique process and mindset for uncovering hidden gems with both multi-bagger potential and a strong margin of safety. Together with a family office, Shaun acquired 12.2% of DIRTT in 2020.
We were attracted to DIRTT because it is a small company with big ambitions to transform the manual construction processes using software and precision manufacturing.
DIRTT’s CEO is Kevin O’Meara who co-founded Builders FirstSource (BLDR) a $9+ billion market cap business started in 1998. We admire Kevin’s vision, drive, and willingness to be held accountable for long-term financial goals.
Between February and mid-March 2020, DIRTT declined ~65% because the pandemic had largely halted office and hotel renovations. We found enough comfort in the cash flow of the company’s medical division (hospitals/clinics/labs) to make an initial investment at an 87% discount to the previous 52-week high.
Our experience owning Autodesk in the past helped us recognize the growing leverage in DIRTT’s business model as its software becomes increasingly entrenched within commercial interior construction processes.
DIRTT is in a great position to benefit from an outsized opportunity in office reconfigurations to meet social distancing standards in the post-COVID workplace.
DIRTT also has meaningful owned assets in five state-of-the-art manufacturing faculties including a new plant in South Carolina that recently doubled the company’s capacity.
The company is conservatively financed and recently completed a capital raise on favorable terms which adds increased operational flexibility in the event the economic recovery takes longer than hoped.”
Based on our calculations, DIRTT Environmental Solutions Ltd. (NASDAQ: DRTT) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. DIRTT Environmental Solutions Ltd. was in 4 hedge fund portfolios at the end of the first quarter of 2021, compared to 5 funds in the fourth quarter of 2020. DRTT delivered a 51.99% 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.