100 Bagger Hunting

Introducing Atomical Capital

Kevin — Fri, 24 Apr 2026 14:44:29 GMT

As you might have noticed, we are taking the next step in our development.

I present you:

Atomical Capital

You can check out our site here.

We’ve been hard at work behind the scenes to set this all up. And both 100 Bagger Hunting and Invest with AI will be 2 publications that fall under the Atomical Capital vision.

Once the rebranding is done, I will talk more about what Atomical Capital is.

But regarding why we did it.

Because we had to.

We are driven by always making things better. And that is what we hope to do here.

And as you noticed, I said WE in the introduction, because I’m no longer alone in this endeavor.

Harvey is our software engineer. He helps build the backbone of Atomical Capital.
Lars is our analyst. This allows us to look at more companies and find more opportunities.

But we’ll go deeper into this in a later article.

I want to introduce you to something we built in secret (well, kind of) over the past 2 months, and you’ll see the results of that in this post.

Our investment process looks like this:

It’s a closed loop: one agentic tool produces an output for a human, who judges, adapts, and provides input to the next tool.

We want to zoom in on a tool called Tracker.

Tracker is an agentic tool that:

Reads our deep dive thesis on file
Gathers ALL data on ALL our companies every week
Then tells us if the thesis is:
- INTACT
- UNDER STRESS
- BROKEN

It does not judge.

Judging whether we hold or buy more is our job. But the tracker helps us save hours tracking all our companies.

It delivers a dashboard like this:

And it writes a weekly report which highlights:

If certain companies are under stress or not
What happened that week with each company
What we should look out for

We’re still iterating on the design, but we’re glad with how it turned out.

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The thesis the tracker uses must have a specific structure and quality. We spent a lot of time rewriting our originals to make sure the tracker can use them.

You can download the full thesis for Pharmx Technologies on this page.

Microcap Thesis

72.3KB ∙ PDF file

Download

Ok, so enough about Atomical Capital.

Any feedback would be appreciated! Especially if you think Tracker would be useful to you!

Leave a comment

Now let’s get the meat: Our portfolio

Portfolio update

Our portfolios reached an absolute peak at the end of 2025 (remember we trimmed our biggest position)

But since then, the first 4 months of 2026 have not been kind.

Our outperformance over the S&P 500 has decreased from more than 50% to about 9% today.

Are we worried? No.

Because our biggest positions, those companies have only gotten stronger.

But let me show you the actual output from Tracker and what it showed us.

It’s pretty amazing…

A death-focused serial acquirer: recession-proof

Kevin — Fri, 17 Apr 2026 18:32:24 GMT

This week’s setup

A short overview of the markets
Rumbu Holdings, a tiny serial acquirer
How to measure dilution risk in microcap companies

1. Bubble meter

“We look at some metrics to gauge what the market temperature is.”

Note: Take the skyscraper metric with a grain of salt

After war troubles, the market has jumped once more. Shiller PE has risen, and the Buffett indicator has briefly touched 200%. Margin debt has declined a little bit, and IPO’s are still flowing (96 this year in the US).

You know I follow the macro from afar. If a tariff storm comes in, it’s easy to check your companies. I did do a quick portfolio check with the Hormuz blockage, but nothing to worry about.

2. Stock in the funnel

Peter Lynch always said to go look at boring businesses. Well, I found one, and it sits in our serial acquirer database.

Rumbu Holdings (Ticker: RMB.V) is a microcap Canadian serial acquirer that buys up funeral homes. Here’s my first assessment of the company.

Description: Never heard of it? Neither had I if I hadn’t built the database. Rumbu Holdings buys funeral homes in Western Canada. That’s the business. Death care. This business is recession-proof. People die. They’ll keep dying. (don’t want to sound too morbid, but it’s true).

Type: Early-stage micro-cap roll-up

Why it’s interesting: Canada’s death-care industry generates C$1.5–1.8 billion a year. More than 70% of it is still family-owned. Not chains. Not private equity. Grandpa built it from the ground up. His children grew up watching him work and decided they wanted a different life. Now, grandpa is 72 and has nobody to hand the keys to.

That’s the supply side of this story.

CEO Daryl Lockyer spent 30 years in the funeral industry. He built 17 homes himself before taking Rumbu public via a reverse takeover in late 2023. When he calls a family owner about selling, they know he’s one of them. His pitch is easy: keep your name on the door, keep your staff, take your cheque, and go enjoy retirement.

The business model is simple math. Rumbu buys these homes at 3–6× EBITDA. It trades publicly at 8–10× EBITDA. That difference is where the money is. Every acquisition is theoretically accretive on day one.

And Rumbu has a tailwind. Statistics Canada projects 40% more deaths per year by 2040 as the baby boomers age.

This playbook has worked in Canada before. Park Lawn Corporation ran this exact roll-up and eventually got acquired by a US firm at a meaningful premium ($1.2 billion; it owned 170 funeral homes). Western Canada alone has roughly 300 independent homes still available. Rumbu has six. The runway is long.

Current Status (in the WATCHLIST). The road is clear. But the execution is early.

Run-rate revenue is around C$7M. Operating cash flow margin sits at 12% (well below their 20–26% targets). A full management team, TSXV listing costs, and audit fees are being spread across only six locations, which explains the difference. Those costs don’t scale with funeral volumes. If they reach 12–15 locations, the same overhead becomes a fraction of revenue. The business would start funding its own growth. But right now, every new acquisition still leans on the BMO credit facility (C$9.96M, roughly 40% still unused), and net leverage sits at 4.5× EBITDA, which is elevated for a company this size.

Although they wanted to grow purely on debt, Rumbu announced a C$2M equity raise in early 2026 at C$1.00/share. The reason: They needed to satisfy bank covenants and unlock the next deal. The placement got delayed because the stock had slid below C$1. Nobody wants to subscribe at C$1.00 when the stock trades below it. So the next acquisition is on hold. The flywheel isn’t spinning yet.

The business model is sound: Make sure you have the cash to reach a certain scale, so that margins increase, more operational cash can be used for growth, and debt can be repaid. Grow to 170 funeral homes, and get bought by private equity like Park Lawn in the past.

What I like: Zero analyst coverage. Average daily volume is around 17,000 shares, so pretty illiquid.

So the question becomes: Is this an opportunity or not?

I see two possible outcomes:

The raise closes. Rumbu gets back to 2–3 acquisitions per year and reaches 12–15 locations by 2027–2028. Their overhead shrinks as a share of revenue. Annual cash flows cross C$1.5–2M. The business starts compounding on its own. A US consolidator eyeing Canada shows up and pays a premium. Early investors do very well.
The raise stays stuck. BMO tightens covenants. Acquisitions stall at six locations. The cash flows cover debt service and not much else. No growth. No re-rating. The thesis doesn’t break, but the stock goes nowhere for years.

I like this company because the setup is easy to understand. But it’s too early for my taste. That’s why I added it to my watchlist. To track it, see how it evolves.

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3. Best article of the week

When you’re diving into small companies, as we saw with Rumbu, one thing to consider is dilution risk.

They can have a great business model and a market tailwind, but if, for some reason, they cannot get the cash to grow, you as an investor might be in trouble.

Ryan Telford introduces the dilution risk scorecard

It’s a way to assess a company’s dilution risk.

And he tested this on the US microcaps universe and got some interesting results.

Check out the full article below ⬇️

https://microcapclub.com/how-to-avoid-dilution-in-microcaps-a-dilution-risk-scorecard/

That’s it for this week.

Portfolio analysis incoming soon!

May the markets be with you, always

Kevin

Data infrastructure 5x play

Kevin — Fri, 10 Apr 2026 13:10:42 GMT

A lot has happened since our first article.

The setup is clear.

They want to build a powered shell, lease it to a hyperscaler. Microsoft, Google, Meta, or Amazon will bring in the GPU racks and other infrastructure.

Hyperscaler negotiations are ongoing.

And if they pull it off, the company won’t be a microcap for much longer.

But in the meantime, they have a $50M debt to repay. With an ultimate date set on the 30th of June.

That means they need money, and there are only 2 ways to procure it: by equity issuance or debt financing.

And yesterday, they ripped off the band-aid, and I believe they are now in a great position to execute.

Let me explain in detail why I think this play still has a 5x upside from today’s price.

This software company, impervious to AI, has never been cheaper

Kevin — Fri, 03 Apr 2026 13:02:39 GMT

Last week, we showed you a list of companies that we tested on AI resilience.

Some were classified as Fortress-like, meaning it would be difficult for AI to disrupt these companies. Others were classified as exposed, in which AI poses a much greater risk.

One company caught my eye in particular, and with its price down so much over the past 6 months, it was time to dive deeper.

For example, here’s what our AI agent, called “Hunter,” showed us for a company like Adobe:

A final score of 55% and a neutral rating.

Although the financials on the right side of the table look attractive, a neutral rating is tricky. That means margins might erode in the future. And we’re looking for exactly the opposite: a company that could benefit from AI, where margins might increase in the future.

In our article on software companies, we concluded that the impact is more nuanced than at first glance and that the playing field has fundamentally changed. Some companies' multiples have been corrected, rightfully so.

Others who benefit from this transition have seen the same contraction without it affecting their business. And this is the case with the following company. Misunderstood and wrongfully sold off by more than 40% from the ATH, even though:

Their pricing is tied to data volume and capacity, so as AI models generate massive amounts of new data, the taxable surface area grows.
They operate in a space where systems have to be deterministic and are not allowed to hallucinate
They launched an Agent Cloud, making them the coordination hub for AI safety and data integrity

On the financial side, the company has:

An average subscription dollar-based net revenue retention of > 120%.
Yoy revenue growth of >40% at over a billion $ scale
Net promoter score of >80
Gross Margins of 80%, thanks to its transition to a software pure play

at an EV/Sales below 8!

The company we’re diving into today received a Fortress rating. Only 8 out of 100 companies received such a high score.

After the downturn over the last 9 months, this company is now up 10% over the past week.

Is the company finally inflecting?

Is it time to hop on the train?

Let’s dive in.

100 Software companies tested for AI resilience

Kevin — Fri, 27 Mar 2026 14:03:36 GMT

Last week, I showed you our framework for assessing whether a software company is prepared for the new AI era.

It’s a tool we call Hunter. You give it a framework and a list of tickers, and it will use financial data and annual reports to assess each company.

We gave Hunter a SAAS scoring framework and 100 software companies that had significant drawdowns over the past 12 months to evaluate.

This took us many days, trial and error, and iteration. You can download the full Excel at the end of this article.

Here are the steps we used:

Refining the framework
Choosing the right model
Choosing financial metrics

Let’s go.

Refining the framework

Our initial framework looked like this:

Tier 1: Survival

Does the company charge for an outcome or per seat? If per seat, the company might have a problem.
How accurate does the software need to be? If an error does not lead to a big problem, AI might displace it.

Survival is the most important aspect of the 4.

Tier 2: Defence

How many system integrations does the software control? The more integrations, the bigger its defensive position.
How big is the switching cost? How much accumulated value would a customer lose by switching?
Who are the clients? Enterprise is better than SMB, which is better than individuals
Are there network effects? If the product becomes better with more users, AI might not be a problem

Tier 3: Offence

How effectively is the company integrating AI into its own systems to strengthen its product?

Tier 4: Secondary moats that compound over time

How much proprietary data is involved? The more the better
Do legal or compliance barriers protect the business?

This is where we stopped.

We don’t want a framework that is simple but not too simple.

And we applied this to a couple of companies, like Rubrik, which gave us the following table:

And a final score of 10.5 out of a max 13.5, which is very high.

But then one of you asked about agentic interaction with this software. If the future is agentic, will some software companies actually benefit from the AI revolution?

So we changed the framework and added this to Tier 3:

Is this company’s product likely to be called by autonomous AI agents at scale?

In other words, we try to look into the future. The strongest companies will provide infrastructure for the agentic era.

Choosing the right model

So we have a framework and a scoring system.

We need an LLM to evaluate the information we provide about the company (from the annual and quarterly reports) and return a score.

So we used Claude Sonnet 4.6 and Opus 4.6, with and without thinking mode, to see which would provide the best result.

For ServiceNow (NOW), we got the following results:

So first off, ServiceNow scores high. But the scoring is off if you don’t apply the reasoning mode to the model, which makes sense.

In our analysis, although Opus 4.6 can capture much more nuance, it made the scoring very bullish (with a 100% perfect score).

After evaluating about 10 companies, we decided that Sonnet 4.6 with the thinking mode would be the best model from both performance and cost perspectives. (Sonnet is 5x cheaper but seems to be more grounded in facts)

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The scoring system

Just a quick recall of the scoring system used.

For each statement, it will say:

Anti-fragile = +1
Neutral = 0
Exposed = -1

And we’ve assigned weights to the different parts of the framework:

So the perfect company would score 13.5 points or 100%.

Based on this model, here’s what the different ranges will be for the companies:

So we can aim for the resilient, fortress companies in the bunch.

We can debate this framework. What matters is the assessment and reasoning Hunter will deliver. That will allow us to draw our own conclusions.

Financial metrics

But a resilient score on itself means nothing.

If a company is classified as Fortress, but still commands a high price in the market, it might still be a bad investment.

So we add specific SaaS metrics alongside each company’s overall AI resilience score. This would give us a better picture.

We added different metrics, but some of them in particular:

Gross margins
Rule of 40
Rule of 40 (Stock-Based Compensation (SBC) corrected)
Price / Free Cash Flow
Price / (FCF - SBC)
Revenue growth

Maybe some metrics are missing. We tried not to put too much in. Which do you think we should add?

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The challenger

You might have heard of the council model by Andrej Karpathy. You let different models do an analysis and then compare them, or let them debate their own results.

The final result is higher quality output and fewer hallucinations. We didn’t build a full council model.

We added an additional challenge layer to Hunter. The challenger has only one goal: to poke holes in Hunter’s assessment of a company. And a brief text analysis will be included in the final output.

You could see it as a form of reliability of the final output. Now, in the end result, the challenger will give the following output:

Agree: Only minor challenges with the assessment
Challenged: Some challenges
Very Challenged: Significant challenges

You can see it as a form of reliability.

But no company has scored “Very Challenged” in the final output. The reason is that the Sonnet in thinking mode is already very conservative in its assessments.

The result

Now let me show you the detailed output on a company like Adobe.

Adobe trades at around 240 USD today, down from its previous 634 USD peak almost 2 years ago.

Here’s what Hunter gives us:

The financials look great. But it also shows that Adobe is not in a bad spot, but not in a great spot either. He ranks it as neutral.

Here’s how it did the analysis. I highlighted the most important parts in bold.

Adobe is a $23.8 billion revenue software incumbent occupying a structurally privileged position across the content lifecycle — from creative production through marketing orchestration — with 96% subscription revenue, $25.2 billion in ARR, and 40% FCF margins that reflect genuine pricing power and low marginal delivery costs. Its core strength against AI disruption lies in entrenchment: the Creative Cloud and Adobe Experience Platform function as workflow backbones across enterprise content operations, with years of accumulated assets, configurations, partner ecosystems, and multi-year contracts creating migration friction that is costly and operationally risky to overcome. Adobe’s second genuine strength is its early positioning as agentic infrastructure — the Adobe Experience Platform Agent Orchestrator, Firefly Services APIs, and Brand Concierge represent deliberate architecture for machine-to-machine consumption, not retrofitted marketing. Every autonomous marketing agent that an enterprise deploys is a plausible Firefly Services or AEP API consumer. However, Adobe faces two significant vulnerabilities. First, its pricing model remains primarily seat-based, and while the shift to consumption-based Firefly credits and API services is underway, the transition is incomplete and not yet quantified in revenue terms — the company discloses no AI-specific ARR, making the monetisation thesis harder to verify. Second, the competitive threat from AI-native entrants is not theoretical: Adobe’s own filing explicitly names AI-native companies attacking creative tools, document productivity, and marketing automation, and acknowledges ‘limited barriers to entry’ in these markets. The commercially safe Firefly training corpus and IP indemnification are genuine defensive assets, but they are not impenetrable.

Overall verdict: Adobe is a well-positioned incumbent with real structural advantages in entrenchment and agentic infrastructure, but one that faces credible AI-native competition and has not yet demonstrated the quantified AI revenue impact that would make its offense fully antifragile. It is defensible, not dominant.

What do you think of this analysis?

Leave a comment

I personally think it’s a good assessment of Adobe’s current situation.

But the power of Hunter is not to run it on a single company.

The power is to run it on hundreds of companies, and then rank them.

So we looked at 95 software companies that had significant drawdowns over the past year and ran our Hunter through them.

Comparing the companies

That means you now have a list you can use to compare every company. If we select 1 company from each category, it looks like this:

Not all financial metrics are shown here, but you can see, for each company, the rule of 40, and even that rule is corrected for Stock-Based Compensation.

Rubrik, for example, is a fast-growing company classified as Fortress-level, but its SBC weighs on its market pricing.

Duolingo, on the other hand, is at the bottom of the list of the 95 companies. It is considered completely exposed.

And I think the model is right:

Does that mean Duolingo is a bad investment?

Not necessarily.

How to use this data?

Our goal was to build a tool that leverages an LLM to analyze companies’ financial and textual data and score software companies.

And as you’ve seen in our framework, a SaaS enterprise company will always score higher than a B2C company like Duolingo.

But the model does not account for Daily Active Users growth, ARR, or other typical SaaS metrics.

Hunter provides an additional starting point for a company analysis. It provides a more informed list than your typical stock screener.

It is not the end result.

In future articles, we’ll go deeper into some of these companies.

The sweet spot is to look for resilient companies that have experienced significant drawdowns and trade at lower multiples, yet still offer ample growth prospects.

Those are the companies that the market might have thrown out and shouldn’t have.

We’ll write about some of them in the future.

Oh, and before I forget, you can download the Excel file:

Hunter Ai Resilience 2026 03 27 Sonnet Thinking

469KB ∙ XLSX file

Download

Next steps

Hunter is only the first iteration of what we’re building. You can imagine using different industry frameworks and running the same analysis on entire industries. Our final vision is that we select an industry, and Hunter will run that industry's framework across all companies in that industry and score them. (we do hope token cost will go down though 😉)

Let me know what you think.

May the markets be with you, always!

Kevin

Is AI going to kill your favourite SaaS company?

Kevin — Fri, 20 Mar 2026 14:03:16 GMT

AI is advancing at lightning speed.

In just a few months, the narrative that AI is making software companies even stronger has been called into question by the release of Claude’s latest capabilities, which have reshaped expectations across the Software landscape.

We’re seeing market disruption happening in real time.

And I’ve been using Claude Code for a couple of months now, also for stock analysis, and I do believe the disruption is real.

It’s no longer: “Can I build it?” It’s should I build it?

But the breakdown of software companies won’t come overnight. Multiples will have a hard time rerating. Most of them will die slowly.

While this industry drawdown is playing out in real time, every investor should be asking the same two questions:

How do I know if a company is likely to be disrupted by AI?
Which names are being wrongfully sold off in this industry drawdown?

To answer both questions, we developed the following checklist.

Checklist

The Checklist consists of nine lenses across four tiers, with three exposure types (Exposed, Neutral, Antifragile).

We assigned a weight to each of them

Tier weights:

The scoring system is as follows:

Exposed = -1 point
Neutral = 0 points
Antifragile = +1 point

Score range: -13.5 to +13.5 (weighted)

Let’s dive into the framework…

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Tier 1: Survival - Do you still have a business in 5 years?

1. Pricing Model (The “Cash Flow” Pillar)

Question: Does the company charge for an outcome or per user seat?

This is the most immediate threat to cash flow. If you charge per human seat and AI makes humans 10x more productive, your revenue will mathematically collapse by 90%. The shift from paying for work to paying for outcomes is the difference between a thriving business and a dying one.

Exposed: The company charges its customers solely per seat. Revenue is directly tied to headcount, which AI will compress.
Neutral: The company blends seat-based and usage-based charges. Some revenue still scales with headcount, but AI-driven efficiency can be offset by fees tied to data volume, API calls, or feature usage.
Antifragile: The company charges based on consumption, outcomes, or value delivered (compute, transactions, storage, data volume). AI adoption amplifies revenue as usage grows.

2. Failure Sensitivity (The “Liability” Pillar)

Question: How accurate does AI need to be to replace this software?

This defines the “Trust Gap”. AI is probabilistic; if a guess results in a typo in a blog post, it’s fine. If it results in a plane crash or a cybersecurity breach, it’s a disaster.

Exposed: 90% accuracy is good enough for the company’s core use case (e.g., marketing copy, basic graphic design). The software is likely to be replaced by AI.
Neutral: AI needs to be consistently reliable (97-99% accurate), but occasional errors are tolerable with human review. The software is partially defensible.
Antifragile: Failure or hallucination is catastrophic (e.g., medical diagnostics, cybersecurity, power grid management, financial compliance). The software is harder to replace with a probabilistic AI model.

Tier 2: Defence - Preventing competitors from eating your lunch

3. Workflow Integration (The “Stickiness” Pillar)

Question: How many system intersections does it control?

Even if an AI tool is better, a company won’t switch if that software is the central nervous system connected to 50 other apps. Replacing a core workflow is like performing heart surgery; most companies would rather just upgrade their current heart with AI.

Exposed: The software operates as a standalone tool with minimal integrations, few dependencies, and low workflow entanglement. It is easier to replace.
Neutral: The software connects to multiple systems but does not serve as the central coordination layer. Replacing it creates friction, but not systemic breakdown.
Antifragile: The software sits at the intersection of many systems, acting as a coordination hub or workflow backbone. Replacement becomes structurally difficult.

4. Switching Cost (The “Friction” Pillar)

Question: How much accumulated value would a customer lose by leaving?

This is distinct from workflow integration. A product can have few integrations but enormous switching friction due to years of accumulated data, configurations, trained employees, and organisational muscle memory. The question isn’t how connected it is? It’s how painful it is to walk away.

Exposed: Customer data is easily exportable, minimal customisation is built on top, and retraining cost is low. A competitor can replicate the experience with minimal migration effort.
Neutral: Customers have a moderate level of accumulated investment, such as historical data, custom configurations, or trained workflows, but migration is feasible within a quarter with dedicated effort.
Antifragile: Customers have years of accumulated data, configurations, custom automations, compliance audit trails, and deeply trained teams. Migration would require months of effort, retraining thousands of employees, and risking operational disruption. The cost of switching far exceeds the cost of staying.

5. Customer Base (The “Inertia” Pillar)

Question: Who does it primarily serve?

Enterprise clients aren’t a moat on their own. However, the cost of software is often negligible compared to retraining 10,000 employees and reconfiguring 100 internal processes. There is a reason why so many people still use Microsoft solutions for use cases where better alternatives exist.

Exposed: The software mainly serves individuals or small businesses. Switching costs are lower, and experimentation is higher.
Neutral: The company serves both SMB and enterprise clients. Defensibility depends on contract structure, integration depth, and switching friction.
Antifragile: The software primarily serves large enterprises. Displacement is significantly harder. Enterprise environments involve procurement cycles, compliance requirements, multi-year contracts, security audits, and cross-department integration.

6. Network Effects (The “Ecosystem” Pillar)

Question: Does the product become more valuable as more participants join the ecosystem?

A product with true network effects creates a self-reinforcing flywheel that is difficult to replicate. It’s not enough to have integrations (that’s Workflow Integration) or switching costs (that’s Friction). This lens measures whether the ecosystem itself compounds in value as scale increases. A marketplace with 10,000 apps is not just 10x better than one with 1,000. There’s a quality difference.

Exposed: The product is a standalone tool with no meaningful ecosystem dynamics. Value is linear; each customer gets the same experience regardless of how many others use the platform. No integration marketplace, no third-party developer community, no cross-customer data benefits.

Neutral: The product has some ecosystem elements, a modest integration marketplace, partner channel, or community, but these are additive rather than compounding. Competitors could replicate the ecosystem with sufficient investment. The product would still function without the ecosystem.

Antifragile: The product sits at the centre of a self-reinforcing ecosystem where value compounds with scale.

Tier 3: Offence - Can AI make this company stronger?

7. AI Adoption Capability (The “Offence” Pillar)

Question: How effectively is the company integrating AI to strengthen its product and expand its market?

Defence alone isn’t enough. The companies that will win the AI era are the ones that use AI to widen their moat by embedding it into their product to deliver more value, expanding into adjacent markets, or creating entirely new revenue streams. A company that is antifragile on defence but slow on AI adoption can still lose to an incumbent that moves faster.

Exposed: The company has no meaningful AI strategy, no AI features shipped, and no public roadmap for AI integration. It is passively waiting for disruption rather than responding to it.
Neutral: The company has announced or shipped AI features (e.g., copilots, assistants, AI-generated suggestions, AI-powered automation), but these are incremental enhancements to existing products. AI is a marketing message and a feature, not a proven revenue driver. Most software companies in 2025-2026 fall into this category.
Antifragile: The company has demonstrated measurable AI impact on its business by not just shipping features, but also proving results. Only a few companies to this day have this.

Tier 4: Alpha - Secondary moats that compound over time

8. Data Ownership (The “Intelligence” Pillar)

Question: How much proprietary data is involved?

Data is only useful if it’s proprietary and clean. If your data is just a mirror of what’s on the public web, it’s not a moat. It only matters if it’s “under-the-hood” data that public models can’t see.

Exposed: The software relies primarily on public, user-exportable, or easily replicable data.
Neutral: The company holds some proprietary data, but it is customer-specific and not meaningfully aggregated across the network.
Antifragile: The company controls proprietary, network-aggregated data that improves as more users join. It benefits from strong data gravity. The system becomes smarter at scale in ways public AI models cannot replicate.

9. Regulatory Exposure (The “Red Tape” Pillar)

Question: Do legal or compliance barriers protect the business?

Regulation is a speed bump moat. It keeps small startups out because they can’t afford the legal fees, but it doesn’t stop a determined incumbent. It’s a great secondary defence, but a weak primary one.

Exposed: The software operates in a lightly regulated environment with minimal legal constraints.
Neutral: The company operates in a regulated environment, but compliance is standardised and replicable. Regulation slows entrants but does not prevent disruption.
Antifragile: The software operates in a highly regulated domain where legal approval, certifications, audits, and liability structures are complex and time-consuming. Regulation becomes a structural moat.

Stress testing HubSpot, SYS-DAT, and Rubrik

Now that we have established the framework, we are going to test it on three companies:

HubSpot is a CRM platform that helps small to medium-sized businesses attract customers, automate marketing and sales, and manage relationships all in one integrated system.
SYS-DAT is an Italian IT services company that supports manufacturing businesses in Italy through ERP solutions, cybersecurity, cloud infrastructure, and data management.
Rubrik is a cybersecurity company that protects and manages enterprise data by providing backup, recovery, and ransomware resilience across cloud and on-premise environments.

Walk through the checklist

Verdict: Antifragile

9. Regulatory Exposure

Rubrik is a certification fortress. With FedRAMP High, GovRAMP, and their new Security Cloud Sovereign (Jan 2026), they meet national security standards that generic software startups cannot touch. In 2026, data sovereignty is a legal requirement that Rubrik has productized into a moat.

Verdict: Antifragile

Rubrik gets a final score of 10,5 (Score range: -13.5 to +13.5).

Conclusion

HubSpot (-1.5) is vulnerable.

HubSpot falls into the Vulnerable classification with meaningful AI risk, and a valuation that reflects this discount. I expected it to be in this category; however, I am still not certain if the harshness of the 70% sellof is justified for a company that could still grow modestly with smaller margins at 4x sales.

SYS-DAT (3) is neutral.

SYS-DAT is in the neutral classification, where only some parts of the business are affected, and only some parts benefit from AI. If they successfully integrate AI into their processes, they might actually benefit from the AI-eats-software narrative because of depressed valuations of future M&A targets.

Rubrik (10,5) is a fortress.

Rubrik is part of the fortress classification thanks to its cloud-native architecture and the implementation of AI in its core products. Those are the companies that will not only survive but also flourish, which is why Investors should pay extra attention to this category.

We’ll use this framework to analyze about 150 software companies, like Adobe, Duolingo, and many others.

It will give you an AI-resilience quality score that you can use to include in your overall analysis and valuation of the company.

Big Excel incoming…

May the markets be with you, always!

Kevin

A double or triple, hidden from the markets

Kevin — Fri, 13 Mar 2026 14:09:27 GMT

I can’t explain it.

Sometimes, there are weeks without finding any opportunities in the markets, and then suddenly they all come at once.

The window to get in at a good price is closing, though. I expect the next quarter to have good news.

This company is a small company that has suddenly been backed by a leader in their industry.

A microcap that gets access to the revenue flow of a billion-dollar company.

You can imagine that once that revenue starts flowing, it creates leverage for this company.

For certain companies, I need days or weeks of due diligence before acting. But after a couple of hours on this one, I was sold.

That doesn’t happen often.

My bet is on a double or triple in the coming years from the current price.

Let’s dive in.

Quarterly video Update

Kevin — Sat, 07 Mar 2026 17:50:37 GMT

Hi there!

Use the link below to watch and review our update.

Use this passcode: 9=55q+UF

WATCH VIDEO

Questions or comments, send me a message:

Have a great weekend!

Kevin

Important info on the 10x opportunity

Kevin — Fri, 06 Mar 2026 19:39:10 GMT

I’m not sure we were supposed to receive this kind of information.

As I mentioned in our previous article.

Time is of the essence.

And now I have obtained a recording with the CEO and COO being interviewed by an institutional player.

In the call, they ask individual investors to disconnect from the call…

So the general public was not supposed to have this information?

Well, now we do, and it makes the case all the more compelling.

The thesis is getting more real, and the possibility for outsized returns, too.

Here’s the analysis ⬇️

A data infrastructure 10x opportunity

Kevin — Wed, 04 Mar 2026 17:23:55 GMT

I normally post my articles on Friday.

But this is an unusual investment opportunity, and time-sensitive.

New information is expected to be revealed in the coming weeks.

Management is scrambling to get things done by the end of March.

Powerful forces are pushing this company forward:

Massive tailwinds in the data center infrastructure play
Institutional backing by proven players in the industry
Unique assets that few other companies hold

And powerful forces are setting this up for a potential short squeeze.

If all goes well in the coming weeks, the price will quickly double or triple, with a 10x increase from current levels in the longer run.

You have to understand.

AI has already created a killer app: The coding assistant.

More and more software will be written.

More and more API tokens will be consumed.

And tokens are expensive.

More data centers are needed.

But data centers consume power.

More power is needed.

But building this infrastructure takes time.

So the hyperscalers are looking for one thing: Speed to power

But the government does not want electricity prices to rise

This all favors behind-the-meter solutions. Microgrids.

And the company we’re looking into has it all.

Cheap gas
Asset light
A microgrid solution

Let’s dive in

IMB update - thesis alignement review

Kevin — Fri, 27 Feb 2026 14:02:49 GMT

I think IMB remains an attractive investment opportunity given the recent decline in price.

The market might have been spooked by the slower recurring revenue growth base, and especially the decline in monitoring revenue.

But guidance has been maintained, and based on the previous 2 years, H2 has always been stronger than H1. Especially for the weaker New…

Pharmx earnings update - Thesis aligment review

Kevin — Thu, 26 Feb 2026 14:02:52 GMT

So, there has been a lot of new information about Pharmx in the past day.

I’ll start with my conclusion, and then you can read the full analysis below.

I’m not going back to my discussion on the Sigma partnership. You can read about it here. It derisks a major wholesaler risk for this microcap company.

I believe Pharmx is in a good spot.

The market drove t…

Pharmx and sigma sign strategic partnership

Kevin — Mon, 23 Feb 2026 14:19:36 GMT

What happens when a billion-dollar market cap company announces a deal with a microcap?

Yesterday, a bit out of the blue, Pharmx announced a strategic partnership with Sigma.

Sigma (Ticker: SIG) is one of the big pharmacy wholesalers until it merged last year with Chemist Warehouse, becoming the biggest pharmacy wholesaler/retailer in Australia and New Zealand.

Let’s put both companies side by side:

In other words, Goliath has agreed to back David.

In my original deep dive, the following schematic showed the business segments. I updated it in view of this transaction:

Before the merger with Chemist Warehouse, Sigma already operated on both sides of the model, with 600 pharmacies on the left and as a wholesaler on the right.

The merger with Chemist Warehouse creates Australia's largest pharmacy retailer, with 1200 pharmacies.

After the partnership, Sigma now owns 10% of Pharmx.

So let’s dive in and see if this deal is good or bad for the company. ⬇️

172% upside for this hidden serial acquirer

Kevin — Fri, 20 Feb 2026 14:01:29 GMT

Charlie Munger has a saying.

Turnarounds seldom turn.

And research by Michael Mauboussin proves this. Only 12% of companies go from a low ROIC to a high ROIC. But when they do, they provide an average return of 33% over all companies.

In my view, turnarounds always need to be structural. There has to be something significant that has happened.

It might be a division divested, some kind of major refinancing that unlocks future potential. Something more than just “new management comes in and explains its turnaround strategy”.

For this reason, we only look for structural turnarounds.

And in the past, we already wrote several times about this company, which I believe has a bright future in front of it.

Don’t forget what I mentioned:

Last quarter, this company increased its guidance
In 2024, it had a takeover bid at $5 per share. The company today is in a better position, and trades below $2.5 per share
The refinancing in 2025 unlocks more firepower to reinvest and find new venues for growth

Lastly, if you screen our serial acquirer database, it shows some interesting metrics that validate the case.

Yes, I think there is signifcant upside, up to a double or triple from the current share price. I would not be surprised if in the future, another takeover offer would be announced.

Let’s dive deeper ⬇️

5 steps to pick a software company

Kevin — Fri, 13 Feb 2026 14:01:35 GMT

This week’s setup:

1. The markets are in a slowdown
2. Tasmea: The next Mader Group? (10-bagger)
3. Watch out for the software meltdown, don’t jump too fast

1. Bubble meter

“We look at some metrics to gauge what the market temperature is.”

Note: Take the skyscraper metric with a grain of salt.

This is the first time, since we started tracking these metrics, that some of them have traded down. The Shiller PE went below 40, and the Buffett Indicator below 220%.

What does it mean?

Nothing.

It’s a blip, all the result of a very focused drawdown in software companies due to the AI will eat software for lunch.

Are you thinking of looking through the rubble to see if there are any gems in there?

Beware before you start dumpster diving. I’ll go deeper into this in part 3 of this article.

It’s not as easy as you might think to find great opportunities.

2. Stock in the funnel

Tasmea is a serial acquirer in Australia. You can find the details in our database over at 100baggerhunter.com

Ticker: TEA.ASX
Description: Serial acquirer providing maintenance and engineering services mainly to the mining, resources, and energy industry
Type: Programmatic industry roll-up with a hybrid acquisition approach. (hybrid sits in between hands-on and hands-off)
Pricing: Forward P/E of 13 and EV/EBIT below 10
Past growth (3y): 30% sales and 50% EPS CAGR

Interested in charts like this? Grab your 15% discount here.

Why it’s interesting: Programmatic acquisition and execution through November 2025 have been flawless. Sales and profits increased, with profits surpassing sales growth. They have been doing bolt-on acquisitions over the past few years. Here’s an overview of their subsidiaries by service segment:

In 2022, they made some smaller acquisitions, around $2M per company. Then they started ramping it up, paying on average $20M per company throughout 2023 and 2024 until August of 2024, when they acquired Futur Engineering Group for $84M. They use a decentralized approach where most of these companies retain their brand. Management stays on board for several years as payment is structured as cash + earn-out schemes. The integration is mainly with back office systems, and cross-selling along a wider client portfolio.

Then they acquired Workpac in November of 2025. You can see how the cash flows evolved:

Grab your 15% discount here.

The problem here is that Workpac is a recruitment agency.

That’s a completely different business model, typically run with high revenues but thin margins. Tasmea has asked investors to judge them on earnings and net income and not on revenue. In addition, they did do 2 equity raises to fund the acquisition, diluting existing shareholders.

Tasmea has mentioned that Workpac will continue operating as a separate entity. Then what’s the rationale behind this acquisition?

It’s difficult to find skilled labour in Australia. Workpac becomes a prime feeder of skilled labour for the whole of Tasmea (bottleneck for Tasmea’s subsidiaries)
This will allow them to bid for bigger projects (as without sufficient staff and capacity, you cannot participate)
Additional cross-selling opportunities as Workpac is present in regions where Tasmea is not. The goal will be to generate more business.

The previous run-up in price (to a P/E of 22) with an unusual acquisition combined with a (small) equity raise, has made the price and multiple come down over the past 4 months:

But management seems confident, giving an EBIT guidance for 2026 of 128M, which would mean the company is currently trading at an EV/EBIT of 9. And about 80% of their 2026 future revenue seems solid:

Current status: The company went through the ideation phase and passed phase 1 of my research funnel. The big question for this company is: Will the market rerate this company forever because of the change in the hybrid business model? And will this acquisition have the positive effects management is hoping for?

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3. Best article of the week

Todd Wenning wrote an interesting short article on the current software slump.

I agree with his conclusion: When there is a downturn, always think about what kind of downturn it is.

I would classify them into 3 categories (he uses 2)

Market wide
Industry wide
Company specific

2020 was a market-wide crash. At the time, I was scrambling for as much cash as possible to buy more companies. Those 2 years were the best years I ever experienced as an investor. The downturn was market-wide, which means you can comfortably buy great companies and wait.

Time is your friend.

The recent downturn in software companies is more of an industry downturn. Future terminal values of these companies are being rerated due to the rise in AI capabilities.

So the question becomes: Is the rerating temporary or permanent?

With a market-wide downturn, the answer is easy. But with this industry downturn, the answer is a lot less obvious.

I’ve been using these AI tools intensely over the past 12 months, and the speed of improvement is astounding.

If you’re hunting in the software space, take your time and do proper due diligence.

I believe the 5 factors you need to look for are:

Does it own proprietary data?
Does it mainly serve enterprise clients?
Are there regulatory or legal requirements that can act as a barrier to entry?
Do you see opportunities where their current software stack can get better by using AI?
Do they charge for an outcome instead of charging for a seat?

If you’ve got 5 yesses, you might have found a great candidate poised for a rebound. (I’ll do some digging myself)

Which company do you think fits these 5 criteria?

Leave a comment

That’s it for this week.

May the markets be with you, always

Kevin

142 serial acquirers to discover

Kevin — Wed, 11 Feb 2026 15:00:35 GMT

One serial acquirer is not the other.

There are many aspects to consider. What’s unique is that it allows us to compare specific business models across industries, across geographies, and try to find the best ones out there.

That’s what the serial acquirer database is for.

But first, I wanted to classify them. Even though Brett Kelly from Kelly Partners Group (KPG) has Buffett as his model for building his business, comparing Berkshire Hathaway to KPG may not make a lot of sense.

So here’s my way of classifying all the serial acquirers:

Why do they acquire?

Cross-Industry Holding: The name of the game is capital allocation, regardless of sectors or industry. This is your typical holding company. The prime example is Berkshire Hathaway.

Industry roll-up: The so-called consolidators. Trying to become bigger and better within a specific industry. Your typical company that fits this bill is United Rentals.

Niche Holding: The goal is not consolidation. The goal is again capital allocation, but this time within a niche industry or business model. The best example is, of course, Constellation Software.

How frequently do they acquire:

Programmatic: Lots of frequent acquisitions, multiple each year. Its a machine
Opportunistic: Sometimes they acquire. Sometimes they do not. You will see a change in the frequency of acquisitions over their lifetime.

How do they integrate:

Hands-on: Serious integration. Sometimes the local brands disappear. Usually, the acquirer is trying to find a margin increase in the acquired company.
Hands-off: Maybe some central oversight for the finance and cash flows. But that’s about it. The acquired business can mostly operate as a separate entity.
Hybrid: A bit in between. It goes further than just central oversight, but the acquired business identity does not disappear.

In the database, you’ll see that every company has been classified using these definitions:

A financial API is connected in the background to always have up-to-date information.

And for the complete functionality and what you can do with it, please watch the video below:

Interested in the database and how to access it?

Here’s how ⬇️

Industry roll-up at a 20% free cash flow yield (and poised for growth)

Kevin — Fri, 06 Feb 2026 13:30:12 GMT

In a couple of days, I’ll be revealing our serial acquirer database.

And when using the ranking system with a focus on free cash flows, this company is the number 3 out of a total of 142 picks.

I already did an initial write-up a couple of months ago.

Time to dig deeper.

Like many companies, the stock price of CareCloud is falling.

Is the market throwing out the baby with the bathwater?

Who is CareCloud?

Ticker: CCLD
Exchange: NASDAQ
Industry: Health Care IT
Market Cap: $107 M
Founding year: 1999
Gross Margins: 48%
FCF margins: 21%
Guidance for 2025: $118 M +7% growth

CareCloud (CCLD) is a healthcare information technology (HIT) operating in the U.S. with a large workforce in Pakistan that provides mainly Revenue Cycle Management (RCM) and Electronic Health Records (EHR) for independent practices, Large Medical Groups, Critical Access Hospitals and so on.

They act as the “backbone” for medical practices and hospitals, helping them manage everything from patient records to complex insurance billing.

In recent years, the company has shifted to a more holistic and modern offering through a series of Acquisitions. The company was originally named Medical Transcription and Billing Company and changed its name to CareCloud after CareCloud’s Acquisition in 2021. Their style of acquiring could be best described as an industry roll-up where they buy smaller companies within their niche to achieve scale and use that scale as a competitive advantage.

Once a company is acquired, CareCloud integrates them Hands-on, meaning the acquired company is highly integrated (SG&A combined, etc.) and the original brand might disappear. The frequency of the deals is opportunistic and usually higher in deal volume relative to the company’s size.

The One-Sentence Pitch

CareCloud had a successful turnaround in the last two years, which shows in FCF and operating profit; however, it is still being priced as a declining business even though the company is growing again for the first time in two years, with peers trading at 2x the current valuation.

The One-Page Pitch

CareCloud’s financial trajectory over the last 24 months represents a radical departure from its historical performance. After years of growth-at-all-costs M&A, the organisation pivoted in 2024 toward operational discipline and restructuring. This shift resulted in the elimination of approximately $26 million in annual operating costs, positioning the company for its first full year of positive earnings per share (EPS) since going public in 2014.

Why is the company in a great position?

Customers of their solutions rarely switch providers (a 95% renewal rate), which is also true for potential acquisition targets.
The company can still be profitable while being one of the lowest-cost providers by leveraging its global offshore workforce of over 3500 employees in Pakistan (90%) and Sri Lanka.
CareCloud has de-leveraged its financial position, which resulted in funding the majority of acquisitions with Free Cash Flows.
CareCloud’s strategic monetisation focuses on upselling standalone SaaS clients (EHR/PM) to more comprehensive RCM services and typically realises a 3x to 4x uplift in revenue per client.
Through recent acquisitions, CareCloud has added new verticals of customers, which expands their TAM meaningfully.

Why is the company undervalued?

The stock trades at the same price as three years ago; meanwhile, the business has materially improved.
If the market recognises this turnaround, then based on their guidance for 2025 with a $26M in EBITDA, you’re looking at a company trading at an EV/EBITDA of around 5, compared to peers like Waystar (Trading at a 22 multiple).
The company does not screen well because of the complex transition from dividend paying prefered shares to common shares, which disorted per share metrics.
With its highest Free Cash Flow ever, the company has a lot of optionality.
Margins across the board have improved since the restructuring in 2024 and are expected to improve further, thanks to the implementation of AI.

What are the risks?

A significant threat to revenue stability is the acquisition of CareCloud’s clients by larger health systems, which historically leads to those clients switching to the acquirer’s preferred enterprise vendors.
CareCloud’s heavy reliance on a global offshore workforce of over 4,000 employees, primarily located in Pakistan, Sri Lanka, and Azad Jammu and Kashmir, presents a significant operational vulnerability.
The company could fail to execute and integrate the acquired companies successfully.
As a cloud-based HIT provider, CareCloud is a high-value target for cyberattacks, and a major data breach could result in fines of up to $50.000 per violation.

History

The evolution of CareCloud (formerly MTBC) is characterised by a transition from a specialised billing service into a comprehensive, AI-driven healthcare technology platform.

Origins & Early Focus (1999–2004)

Founded in 1999 as Medical Transcription Billing Corporation (MTBC) by Mahmud Haq in Somerset, New Jersey. It started as a medical transcription and manual billing service provider aimed at reducing administrative burden on physicians, especially smaller practices.
In 2004, MTBC began developing a proprietary integrated software suite for practice management and electronic health records (EHR), marking an early shift from pure services to tech-enabled healthcare operations.

Expansion & IPO (2005–2014)

MTBC went public on NASDAQ in July 2014 under the ticker MTBC.
By this point, MTBC had started building technology platforms alongside its service offerings, recognising that integrated software plus billing and revenue cycle management (RCM) would be central to future growth.

Acquisition-Led Growth (2015–2019)

Post-IPO, MTBC pursued an aggressive acquisition strategy, buying numerous medical billing, practice management, and related healthcare IT companies to expand its footprint and capabilities. Examples include Gulf Coast Billing, Renaissance Physician Services, and MediGain in 2016, and Orion in 2018.
These acquisitions expanded MTBC’s client base and geographic reach, and increasingly shifted its model toward full revenue cycle management and SaaS offerings rather than standalone transcription.
In 2017, MTBC launched talkEHR, one of the industry’s first voice-enabled EHR solutions, underlining a move toward tech innovation.

Strategic Rebranding & Market Positioning (2019–2024)

2020: MTBC acquired CareCloud Corporation, a cloud-focused healthcare IT firm whose name it later adopted. The rebranding signalled a shift from service-centric billing to an integrated cloud-based healthcare technology provider.

Following the rebrand, CareCloud continued integrating acquisitions to build an end-to-end platform combining SaaS software with recurring revenue services in RCM, telehealth, analytics, and practice automation.
The company also focused on operational and financial efficiency, demonstrating a turnaround to profitability in 2024 after prior losses.

Business Model Shifts & The “AI-First” Transformation (2025–now)

Cost rationalisation: This shift resulted in the elimination of roughly $26 million in annual operating costs, leading to six consecutive quarters of positive GAAP net income through late 2025.
Capital simplification: During 2025, the company aggressively simplified its capital structure by converting a substantial portion of its high-dividend Series A preferred stock into common stock to free up cash flow.

Strategic realignment: As of January 1, 2026, the company implemented a leadership change where Stephen Snyder became the sole CEO and A. Hadi Chaudhry moved to Chief Strategy Officer to focus entirely on the enterprise AI vision.
AI centre of excellence: CareCloud now operates a dedicated AI Centre of Excellence with 100 full-time AI professionals.
Product evolution: Its current positioning is built on generative AI suites, such as cirrusAI (ambient listening for clinical notes) and stratusAI (conversational AI for front-desk automation).

Before we assess the company in full, we need to look at its lifecycle. ⬇️

From 2014 until 2021, CareCloud was in phase 3: self-funding, with rapidly growing revenues but still unprofitable.

In 2022, the company crashed directly to phase 6: decline. Two massive, highly profitable clients that were acquired by larger health systems in mid-2022 caused revenue to decline for the first time in history. Revenue continued to decline year after year until the end of 2024.

2025 marks a turning point, as the company is closing in on a 7% yoy increase in revenue. From a life cycle standpoint, Care Cloud is now in phase 4: operating leverage with a net profit for the first time in its history since becoming a public company.

It looks like CareCloud has performed a structural turnaround with prospects of growing profitably in the future.

Now let’s take a look at how SPECIAL this company actually is.

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How Special is CareCloud?

We measure the quality of the company through our SPECIAL score. We define it through 7 attributes.

S for Sales Strength
P for Profitability
E for Endurance
C for Competitiveness
I for Industry
A for Asset Agility
L for Leadership

In this part, we uncover the first 3 letters.

Sales Strength

We want to gain a fundamental understanding of the business model. Who buys what and why? How strong is the business model? Do they need to spend a lot on marketing to sell? Where is the company in its life cycle? (source used: income statement)

CareCloud (CCLD) is a healthcare technology company that acts as the “back-office engine” for doctors and hospitals, using a global workforce and artificial intelligence to handle the complicated task of getting paid by insurance companies.

Every time we go to a doctor or to a hospital for a service, we receive the service first and pay later. If the doctors and the hospitals want to collect the money for the services they performed, they have to fill out the paperwork perfectly, otherwise the insurance company won’t pay them for their services. Once the insurance company agrees to pay for the service, they are going to send a bill back to us or cover the whole amount, depending on the Excess on insurance policies

Since doctors and hospitals are trained to help people first and run a business second, many choose CareCloud as a super-smart assistant to handle the administrative part. CareCloud gives the doctor a special computer program (called an EHR) to keep track of patients. When the doctor finishes seeing a patient, CareCloud’s team and its “AI robots” take over. They send the bill to the insurance company and make sure the money actually arrives in the doctor’s bank account.

How does this company make money?

CareCloud makes money in two main ways:

Subscriptions: Doctors pay a monthly “rent” to use their software (SaaS).
Success Fees (RCM): CareCloud takes a percentage (usually a small slice) of all the money they successfully collect from insurance companies for the doctor. This is called Revenue Cycle Management.

This model is great because CareCloud always gets paid via the subscriptions and benefits when their customers are successful through their processing fee.

Why do customers pay CareCloud?

Healthcare providers (doctors and hospitals) pay CareCloud because it is cheaper and easier to pay CareCloud than to hire a huge team of office workers to handle the complicated medical laws and insurance rules.

Who are the customers? They serve over 40,000 providers across more than 50 medical specialties. This includes:

Small family doctors.
Large groups of specialists (like cardiologists or surgeons).
Small and mid-sized “resource-constrained” hospitals that need to save money.

CareCloud started out with small family doctors, but recognised the need to vertically expand into the other categories to improve the resilience and quality of the business

Who are the suppliers? CareCloud’s most important “supply” is labour. They have a massive “offshore” team of over 3,500 employees in Pakistan and Sri Lanka. These workers do the heavy lifting of processing data and coding at a much lower cost than hiring people in the U.S..

What is their sales segmentation? As of 2025, their business is split into two main parts:

Healthcare IT (~87% of revenue): This is the core business of selling software and billing services.
Medical practice management (~13% of revenue): This is where CareCloud actually manages the daily operations of specific medical clinics. It serves as a “live environment” or real-world laboratory. They test their new AI tools and software in these clinics to make sure they work perfectly before selling them to thousands of other doctors.

What is their sales process?

They use a strategy called “Upselling.” They might start by selling a doctor one simple software tool. Once the doctor trusts them, CareCloud convinces them to switch to the “full package”, where CareCloud handles all their billing, which can generate 3 to 4 times more revenue for CareCloud than just the software alone.

How did sales evolve over the last few years?

Since 2021, revenue has been in a steady decline. However, this year marks the first time in 5 years with positive growth. Assuming they can deploy their free cash flow into acquisitions efficiently and upsell their existing client base further, revenue should reaccelerate again.

CareCloud has successfully slashed its sales and marketing intensity by more than half over the last two years (8% →4% of sales), transitioning from a high-spend customer acquisition model to an efficient “upsell” strategy. This reduction is a primary driver of the company’s recent return to GAAP profitability.

The current weaknesses in sales strength are:

Growth is still slow
It’s hard to onboard new clients because often the staff needs training, data needs to be migrated, budgets are tight, and sometimes clinics don’t make the decisions on IT spending themselves, but rather Hospital associations. That is why they prefer to acquire other companies with a new customer base.

Sales Strength Verdict: 6/10

Profitability

We look at the different margins and the quality of the earnings. Can the company be self-sufficient? Is there reinvesting potential or will they have to rely on debt or share issuance? (source used: income statement)

To assess the profitability of the company, we are going to look at the margins first.

CareCloud’s Gross Margin originally started out in the mid 40s but got worse over time through the aggressive M&A without a focus on profitability. In 2024, the turning point occurred when the company eliminated approximately $26 million in annual operating costs as part of the restructuring focused on streamlining the legacy aggregator model into a unified platform. Part of this initiative impacted the operating margin as well, since only a part of the employees’ cost gets recognised under Cost of Sales and others as SG&A.

The most transformative driver, however, has been the internal deployment of the CirrusAI and stratusAI suites. Those solutions are automating 80% of the medical coding tasks. This can also be seen as a critical development since their initial edge was their low-cost structure provided by the offshore workforce who operates at approximately one-tenth the cost of comparable U.S. labour. If now every company can use AI in the same way as CareCloud does, their cost advantage diminishes.

Net Profit Margin has been positive for the first time in Q2-2025. Although the company had periods of operating profit, net income was always depressed because of the “Hidden” Cost: Preferred Stock Dividends.

For years, instead of going to a bank for loans, CareCloud raised money by selling preferred stock (Series A and Series B). While bank debt requires interest, Preferred Stock requires dividends. In a financial report, dividends are not listed as an operating expense like interest is. Instead, they are typically subtracted at the very bottom of the Income Statement (after net income) or shown in the statement of shareholders’ equity.

A major part of CareCloud’s recent success is that they fixed this expensive capital structure, freeing up millions in cash for the company to use for AI development. This development can be best seen in the development of the fcf margin, which is at a historic high. If we assume they can bring those dividend payments to zero, then net income = operating profit - tax. Normally, the tax rate would be 21% (federal), but because of CareCloud’s significant Net Operating Loss (NOL) carryforwards (exceeding $100 million in recent years), CareCloud is expected to pay minimal U.S. federal taxes for several more years until these NOLs are exhausted.

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So with this in mind, net profit is more or less equal to operating profit in the foreseeable future. This would mean net profit margins of around 10%. Using analysts’ estimates that the company is supposed to generate $131 million in revenue in 2026, we would look at around $13.1 million in profits and a forward P/E of around 8 based on today’s market cap.

Profit Strength Verdict: 6/10

Endurance

We look at the strength of the balance sheet and how resilient the business is. Can it withstand regulatory changes or downtrends in the economy? How long can the company endure? (source used: balance sheet)

Balance sheet strength and de-leveraging

The company has aggressively cleared its traditional debt obligations, moving toward a “clean capital stack” that provides high financial flexibility. As of September 30, 2025, borrowing under the company’s line of credit was reduced to $6.5 million, compared to cash and Equivalents of $5.1 million. Even their historical burden, the high-dividend preferred stock, got significantly reduced. In 2025, the company converted approximately 78% of its Series A Preferred Stock (reducing it from ~4.5 million shares to ~985,000 shares).

As a result of the restructuring, the company now has more fcf at its disposal than ever, allowing it to fund acquisitions like Medsphere largely through cash on hand and rapidly deleverage the associated credit facilities.

Business resilience and economic endurance

CareCloud’s resilience is built on a “sticky” and predictable revenue model that can withstand economic downtrends:

Client retention: The RCM (Revenue Cycle Management) segment maintains a 95% renewal rate, indicating that its services are mission-critical for providers regardless of the economic climate.
Operational advantage: By leveraging an offshore workforce that operates at a “structural cost advantage,” CareCloud can maintain profitability at price points that competitors cannot match, making it the “affordable” choice during economic contractions.
The transition of standalone software clients to RCM creates a 3x to 4x revenue multiplier with nearly zero switching costs, allowing for organic growth without high capital expenditure.

How long can the company endure?

With six consecutive quarters of positive GAAP net income through Q3 2025 and a surging free cash flow profile, CareCloud is no longer in survival mode. The company has enough dry powder (financial flexibility) to not only endure indefinitely under current conditions but also to pursue additional acquisitions and reinvest in its AI Centre of Excellence. The balance sheet is now positioned attractively due to this lack of debt and simplified capital structure.

Endurance Strength Verdict: 7.5/10

Up until now, the company has not performed excellently, due to its relatively recent pivot towards growth and profitability. However, this is what makes it so interesting, because the markets seem not to have recognised that shift yet.

And since the company has been caught in the software storm, the price is trading lower and lower.

The rest of the S.P.E.C.I.A.L framework and the full valuation will appear in the third and final article on CareCloud soon!

You’ll receive part 3 before the CareCloud earnings update at the end of this month.

May the markets be with you, always!

Kevin

Weight watchers, value trap or multibagger?

Kevin — Fri, 30 Jan 2026 16:01:53 GMT

This week’s setup

1. Google DeepMind CEO on the AI-bubble
2. Is Weight Watchers (WW) done for, or revival imminent?
3. Going further than ROIC

1. Bubble meter

Note: Take the skyscraper metric with a grain of salt. Margin debt keeps increasing. Shiller PE creeps higher.

When Demis Hassabis, CEO of Google Deepmind speaks about AI and the markets, I’m listening.

Google was the first to build AlphaGo to beat a GO grandmaster. Google was the first to write a paper on transformers, which eventually led to ChatGPT (well, it dropped the ball there, as it should have been first to market).

Demis was in Davos, and in a nutshell, he doesn’t view the current market as “an AI bubble”. To him, it’s a venture bubble within the overall market. Companies get funded fast, without a lot of verification if the product or service provides real value.

Early stage AI-money is getting sloppy. And private companies get huge billion-dollar valuations. Now, that also matters for the public markets, as certain public companies get price-anchored to these private ones. And when certain private companies implode, some of the public ones will follow.

So AI is not a mirage. He still believes in the long-term potential. But checks are written ahead of evidence.

He sees a definite increase in usage of their latest Gemini models, and thinks Google will withstand any “bubble implosion”.

But usage does not auto-translate into profit pools. And so we’ll have to see if Google search keeps its dominance.

2. Stock in the funnel

Let’s get to the stock in the funnel, and this week that is: Weight Watchers (Ticker: WW)

Description: Weight Watchers. If you’re “old” like me (I’m 44), I don’t have to explain the company, right? But for the youngsters, here’s what it does: It has a behavioral program that helps people lose weight (used to be live, in the flesh, now they also do digital). But the business has been decimated over the years with the growth of telehealth and, of course, the introduction of GLP-1 drugs.

Type: Potential turnaround

Why it’s interesting: Weight Watchers has been suffering over the past few years. Filed for Chapter 11 bankruptcy last year. Was delisted. After a successful refinancing, was relisted on the Nasdaq. Just like stock investors need a process to be able to continuously outperform, people who want to lose weight also need a process, a community that helps them.

That’s what Weight Watchers offered in the past. But there’s always been a problem with retention. You know how it works. You start the year with your new year’s resolution to lose weight (that’s when WW spends the most on their ads, by the way). And then somewhere along the way, you stop. At least, that’s how I remember it from people I knew following the program in the past.

But there’s an opportunity now. The magic of GLP-1. The weight loss drug. Now also available in pill format.

Again, I know people who have used it. Instant results. However, without guidance, to change your lifestyle, those results are only temporary.

That’s the shift WW is going for. Away from the typical behavioral program, but focused on a clinical program. That means, GLP-1 subscription to a patient combined with a program to change their lifestyle. That sounds like a winning combination. And the clinical segment side is growing (in green)

From the annual report, the 2025 number is estimated by author

Current Status: (more research needed). Yes, clinical is growing, but up until now, it cannot compensate for the decline in revenue from their traditional business. And WW is not the only player in town. Noom is a private company that has a telehealth weight loss app and sells GLP-1 drugs, too. It has 1.5 million paying subscribers, has taken market share of WW, and is valued at $3 Billion. Compare that to the current enterprise value of WW at $558 Million, which has 3 million paying members in total.

One last thing is that the capital restructuring leaves them with about $465M in debt. Based on their cash balance at the end of Q1 each year, they have to mandatory pay back part of their debt above a 100M threshold. So if their current cash balance is 170M. And let’s say, at the end of Q1, they still have that 170M in cash. They will be forced to pay down 70M in debt, reducing their debt to 395M. This system is in place up to 2030.

So the question then becomes: Is WW too cheap?

Two possible outcomes:

Clinical keeps growing and offsets the overall decline in revenue. Total revenue stabilizes and starts growing (albeit slowly) in the future. Free cash flow is generated. Part of the debt is paid down. The market applies a rerating as it sees the company turning around.
Clinical keeps growing, but at a lower pace. Overall revenue keeps declining. No cash flows or modest cash flows are generated. Weight Watchers dies slowly as it will not be able to meet their debt obligations towards 2030. Refinancing becomes difficult.

The metaphor I would use to describe this stock is like an old man, wanting to ride that big wave (GLP1) with his surfboard one last time. If he keeps his balance, he’ll go for glory. If he falls off the board, he might die in the water.

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3. Best article of the week

Well, I actually reread Mauboussin’s article on ROIC and the investment process.

A good company, which has a high ROIC, and a good stock, which has a high total shareholder return (TSR), are two different things. The reason is that a stock price reflects the market’s expectations about a company’s future financial results. Excess returns are the result of revisions in expectations. Of course, actual financial results shape and reshape expectations. But the stock of a company with a high ROIC will not deliver attractive returns if it fails to exceed expectations over time.

Two tables in this article caught my eye:

Rising ROIC’s are good for shareholders. If in the 3-year period, you bought a company in the worst quintile, and it somehow ended up in the best quintile in year 3, you got yourself a TSR of 33%. A typical turnaround or profit inflection story.

High ROIC’s are sticky. 48% of the companies that started the 3-year period in the highest ROIC quintile stayed there. On the other hand, only 12% of the companies that started in the worst quintile actually ended up in the best quintile.

In other words, turnarounds are less likely (12%), but when they do, they offer great returns (33%). So a quality strategy or a turnaround strategy can both work.

Some closing thoughts on ROIC:

If you value past ROIC, you’re probably looking at mature growth companies (high growth companies often have bad ROIC, but can be great investments)
ROIC is always backward-looking (by definition); it therefore has little to do with what will happen tomorrow
Our goal is to find future high ROIC companies

I went deeper into this topic in this article. ⬇️

That’s it for this week.

May the markets be with you, always

Kevin

If Constellation Software and SAP had an Italian child...

Kevin — Fri, 23 Jan 2026 16:02:54 GMT

The company we are going to cover today shares the same traits as Constellation Software and SAP, but remains largely unknown due to its small size and short presence in the public markets.

This company is led by the second generation of the founder, who to this day remains involved in the company.
It has recurring revenues that make up to 70% of total revenues, with clients who rely heavily on its solutions, with high switching costs, and high barriers to entry.
The business has low capital Intensity and benefits from low net working capital thanks to the payment structure.
Revenue has recently reaccelerated as the company put a higher emphasis on M&A as part of its strategy shift.
They operate almost exclusively in one of Europe’s most attractive Markets for small private companies, where trust and who you are as a buyer tend to be more valued than what you pay.

What makes serial acquirers such an attractive business model for multi-bagger returns?

Programmatic serial acquirers have structural advantages over other companies. It starts with the high optionality through the high deployability of capital in new deals, which then later can fund the next deals and so on. Another advantage is that a higher number of smaller acquisitions tends to diversify the risk, with the additional advantage of often having to pay lower valuations since, for most big players, they are too small to meaningfully impact the top or bottom line.

Serial acquirers, as they grow, solve the reinvestment problem.

Most businesses cannot keep compounding as they grow. If they are shareholder-friendly, they will give capital back through dividends or buybacks.

A serial acquirer, as long as it keeps finding opportunities, can keep on compounding capital.

Even with the latest drawdown, you would have compounded your capital at a 20% CAGR if you had bought Constellation Software a decade ago.

No wonder Christopher Mayer, author of 100-baggers is a fan of serial acquirers.

So we’re building a serial acquirer database.

Here’s a glimpse.

The database will hold our own classification and financial metrics to easily compare the companies between them.

But let’s first take a look at a lesser-known market opportunity.

The market opportunity

In the article from REQ Capital: “A Deep Dive into Shareholder Value Creation by Acquisition-Driven Compounders” they state that in Europe, 99.8% of all companies are small and medium-sized enterprises with fewer than 250 employees. This concludes a total of 23.5 million companies. Of those 23.5 million companies, 94% are “independent,” meaning large corporations do not control them. Families and founders own these companies. In Europe, around 15,000 companies change owners each year. The acquirers range from large corporations or private equity firms to acquisition-driven compounders. The country distribution of SMEs in Europe is as follows (in millions of companies):

source: https://req.no/wp-content/uploads/2023/12/REQ-Deep-Dive-Acquisition-driven-Compounders-December-2023.pdf

Italy is one of the largest manufacturing countries in Europe, with many family businesses being around for almost a century. What makes Italy’s business culture stand out is the cultural importance of close personal business relationships, which is why acquirers must have a local presence in Italy. It’s not surprising that this huge potential doesn’t go unnoticed. Swedish Serial Acquirers like Lifco and Addtech are doing an increased number of their new deals in the Italian market.

According to the “Il digitale in Italia 2024”, a report which covers the trends in the Italian IT sector, the market is supposed to grow around 7% p.a. in the foreseeable future. This increase in demand comes from the government initiative NRRP (National Recovery and Resilience Plan) and industry tailwinds and long-term drivers such as Big Data and Digitalisation, Cybersecurity and the further migration to the cloud.

The only question left to answer is how can we participate to capture some of that market opportunity?

Here’s how ⬇️

Update on one of the best risk-reward setups out there

Kevin — Wed, 21 Jan 2026 16:30:50 GMT

Two Months ago, I had a meeting with Hugo Navarro, investor and writer of Undervalued and Undercovered.

We discussed several stocks, and one of them was one of my favorites, Pharmx Technologies.

Two weeks ago, Hugo sent out his deep dive.

40% EBIT margins","truncated_body_text":"Today we will be looking at a monopoly payment gateway across the entire pharmacy sector in Australia. About 23b AUD in transaction volumes are routed through its system. Orders, invoices, stock feeds, everything is processed through it.","date":"2026-01-07T14:52:38.550Z","like_count":13,"comment_count":5,"bylines":[{"id":101385257,"name":"Hugo Navarro","handle":"hugonavarro","previous_name":null,"photo_url":"https://substackcdn.com/image/fetch/$s_!xo19!,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fa6de5650-de22-4d26-821a-cbf84bc7ef27_390x388.png","bio":"I help investors find undervalued companies that are largely overlooked by analysts. Returns: 2025: 64.3% | YTD: 6.82%","profile_set_up_at":"2024-06-27T08:56:46.415Z","reader_installed_at":"2024-08-04T13:23:20.839Z","publicationUsers":[{"id":2782214,"user_id":101385257,"publication_id":2740958,"role":"admin","public":true,"is_primary":true,"publication":{"id":2740958,"name":"Undervalued and undercovered","subdomain":"smallcaptreasures","custom_domain":null,"custom_domain_optional":false,"hero_text":"I am a passionate investor eager to share my reports on companies that are undervalued compared to the market and their peers, and are undercovered by analysts.","logo_url":"https://substack-post-media.s3.amazonaws.com/public/images/3c020636-df2e-45e4-a984-6669432cc719_388x388.png","author_id":101385257,"primary_user_id":101385257,"theme_var_background_pop":"#B599F1","created_at":"2024-06-27T08:59:18.090Z","email_from_name":null,"copyright":"Hugo Navarro","founding_plan_name":"Founding Member","community_enabled":true,"invite_only":false,"payments_state":"enabled","language":null,"explicit":false,"homepage_type":"newspaper","is_personal_mode":false}}],"is_guest":false,"bestseller_tier":100,"status":{"bestsellerTier":100,"subscriberTier":5,"leaderboard":null,"vip":false,"badge":{"type":"bestseller","tier":100},"paidPublicationIds":[658184,2649092,1186772,751828,1003402,1465242,393705],"subscriber":null}}],"utm_campaign":null,"belowTheFold":false,"type":"newsletter","language":"en"}" data-component-name="EmbeddedPostToDOM">

Undervalued and undercovered

Digital infrastructure monopoly with 5–7x potential: the road to >40% EBIT margins

Today we will be looking at a monopoly payment gateway across the entire pharmacy sector in Australia. About 23b AUD in transaction volumes are routed through its system. Orders, invoices, stock feeds, everything is processed through it…

4 months ago · 13 likes · 5 comments · Hugo Navarro

With his permission, I will share the highlights of that deep dive.

If you’ve never heard of Pharmx, please read my deep dive first, as this article will only make sense if you have some knowledge about the company. (I removed the paywall.)

This article will first highlight the new information and how this results in Hugo’s valuation.

I will end the article with my own opinion and how the bet (upside potential versus downside risk) has changed based on this new information.

And I can already say, even though the stock has doubled in 2025, I believe there is more in store.

Here’s why ⬇️