Anatomy of a 2024 Wolf Pick - Kraken Robotics
Follow the ideas - invest in the execution and strike when the iron is hot
If you have been following my reviews and other adventures on Twitter or message boards than you know that I tend to attract some haters. Most investors take their individual investments a little too seriously, and in general are not warm to gentle critique. When I dislike a stock I’m typically not very gentle, so when these ideas clash, it can get ugly.
I start with this as recently someone was offended by my affinity for Kraken Robotics because I “didn’t like them two years ago”.
That’s a fair statement. I first reviewed Kraken three years ago, back when I wrote reviews in Microsoft Word and the only audience was the TSA discord. I awarded them 2.5 stars. A year later, in October of 2022, I downgraded them to two stars. A little more than a year later, they were upgraded and just after that, announced as a 2024 pick.
That’s nice Wolf, is there a moral to the story? I hope so.
I’m a firm believer that investors can wait for signals of changing fundamentals and then strike when the iron is hot. Many small cap investors get burned by falling in love with an idea without enough or any consideration for execution.
In my first review, the top line looked pretty good but the company was still burning a significant amount of cash and diluting shareholders by raising capital. The stock was trading around 45 cents (chart notation 1).
In my next review a year later, revenue was up by 256% and I gave it a downgrade as they were still burning through high amounts of cash and their EBITDA loss was worse on all of that extra business. The stock was trading around 45 cents (chart notation 2).
In my upgraded review in December of last year, revenues were still growing strong, but cash burn changed to cash flow as margins stabilized and cash burning expenses leveled off which contributed to significantly improved profitability. A week prior to these financials dropping, as you might have guessed, the stock traded at 45 cents (chart notation 3).
If you have been a shareholder since those earlier reviews you would have seen the stock rise to the high sixty cent range, and fall to the high twenty cent range for a pretty stomach churning ride. If you waited until the iron was hot, you could have eliminated going through that volatility while reducing one of the most important aspects of investing - risk. For what it’s worth, I got in at 58 cents.
There will always be exceptions, but if you look back at most successful small caps you will find a trend and a change in fundamentals that take the stock to much higher levels. Following this philosophy may mean that you may miss out on the odd winner. One thing I know for sure, for any of my losers over the past few years, it’s because I didn’t follow this philosophy.
A two star review doesn’t necessarily mean I don’t or will never like them (see my summary above from my 2022 review). They might just need a little more time to execute on their idea. That’s ok.
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Disclaimer:
My intent is for my reviews to be a bolt on to due diligence that you have already completed. I receive dozens of review requests a week, therefore my own DD may be great or none whatsoever. Unless otherwise stated or implied, my opinions are on the financial performance of the company based on their most recent filings and I do so without compensation. I conduct these reviews to assist other retail investors whose research skills are limited when it comes to reviewing financial statements.
Wolf FINS Reviews are intended to be informational and are based on personal opinion. They are not intended to be financial advice, and all readers are encouraged to perform their own due diligence prior to their investment decisions, including discussions with their investment advisor.