Value Investing Q3 Letter Recaps: ASTL, CVNA, ESTC

Our Value Investing Letter Recaps keep things simple. 

Each email focuses on three value investing hedge fund letters, three ideas, all digestible in roughly three minutes

Within each idea we answer four main questions: 

  • What does the business do? 
  • Why is it a good bet? 
  • Why does the opportunity exist? 
  • What is the prize if you’re right?

Quick housekeeping note that nothing you read is investment advice and please do your own due diligence before investing. Also, I do not own any of the below-mentioned securities as of this writing. 

Finally, we get each investment letter from r/SecurityAnalysis, which you can find here

This week we analyzed Algoma Steel Group (ASTL), Carvana (CVNA), and Elastic Software (ESTC).

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Alright, back to the investor letters!

Top 3 Value Investing Letters You Need To Know About


1. Nordstern Capital: Algoma Steel Group (ASTL)

Johannes Arnold runs Nordstern Capital. This is their second appearance this quarter. Last time we profiled their pitch on Embracer Group (EMBRAC), which you can read here

This week we feature another one of their ideas, ASTL. Check out the Q3 letter here

Let’s dive in.

What does ASTL do? 

Via ASTL produces and sells steel products primarily in North America. It provides flat/sheet steel products, including temper rolling, cold rolled, hot-rolled pickled and oiled products, floor plate, and cut-to-length products for the automotive industry, hollow structural product manufacturers, and the light manufacturing and transportation industries; and plate steel products that consist of rolled, hot-rolled, and heat-treated for use in the construction or manufacture of railcars, buildings, bridges, off-highway equipment, storage tanks, ships, and military applications.

Why is it a good bet? 

“Algoma Steel Group (ASTL) reduced its diluted share count this year from 177 million to 111 million … 

Today, ASTL has $500m in net cash and a market capitalization of about $700m. The company is profitable even in the current recessionary environment.” 

Why does the opportunity exist? 

Recession fears may temporarily suppress demand and prices. The fundamental issue, however, is a sustainable lack of supply, caused by decade-long underinvestment. The shortages cannot be resolved in the short to medium term.”

What is the prize if you’re right? 

“The CFO expects annual mid-cycle free cash flow generation greater than the current ASTL enterprise value.

Further Research Material


2. Steel City Capital LP: Carvana (CVNA) – Short

Michael Hacke is the founder of Steel City Capital and a frequent guest on the Value Letter Recap Series. You can find his other appearances here

This week we’re examining Michael’s long-time short, Carvana (CVNA). You can read his Q3 letter here. So far, the shorts have won the CVNA war. Time to give those that were short a victory lap. 

Let’s dive in.

What does CVNA do?

Via CVNA operates an e-commerce platform for buying and selling used cars in the United States. The company’s platform allows customers to research and identify a vehicle; inspect it using the company’s 360-degree vehicle imaging technology; obtain financing and warranty coverage; purchase the vehicle; and schedule delivery or pick-up from their desktop or mobile devices.

Why is it a good bet? 

“While the shares already experienced a steep decline during the past year, the postearnings sell-off appears to reflect investors finally acknowledging the company’s near-term liquidity issues. 

Raising capital – debt or equity – seems unlikely, if not impossible. Bulls had been holding on to the hope CVNA would meet its stated “goal” of generating “significantly positive EBITDA in FY 2023,” but management walked back that aspiration last week”

Why does the opportunity exist? 

“The [guidance] language was deliberate (and probably highly lawyered), and in my estimation, reflected an effort to give bulls something to cling on to without the company exposing itself to a lawsuit when they (inevitably) missed. ”

What’s the prize if you’re right? 

Me: Carvana is down 98% over the last year. This means that any short at this point is profitable, regardless of where you first shorted the stock. 

Further Research Material 


3. Greenhaven Road Capital: Elastic Software (ESTC)

Scott Miller makes another appearance on the Value Letter Recap Series this quarter. Last time we dissected his HGTY pitch, which you can read here

This week, we’re breaking down another one of Miller’s holdings: ESTC. 

Let’s get after it.

What does ESTC do? 

“ESTC powers search for a wide range of customers, including Uber, and also provides observability and security solutions. [They’ve] been downloaded over 3 billion times.”

Why is it a good bet? 

“Elastic benefits from the secular tailwinds of ever-growing amounts of unstructured data and employs a usage-based pricing model: the more data used, the more they can charge. The fastest growing portion of their business is related to security products, and there does not appear to be a slowdown in cyber threats coming any time soon … 

One thing is clear – once a customer is “landed,” they tend to spend more in the subsequent years. Elastic’s net revenue retention has hovered around 130% for several years.”

Why does the opportunity exist? 

“[ESTC] succeeded in stopping AWS (Amazon Web Services) from selling a confusingly named competitive product (Elasticsearch). Secondly, the gap between the quality of their free offerings and paid offerings has only widened, nudging users towards paid.”

What is the prize if you’re right? 

“The company has added 2,000 basis points of operating profits in the last four years and has indicated that this progression should continue. 

They are currently break-even and cash flow positive with a rock-solid balance sheet. ESTC shares are trading at less than 5X 2023 revenue with a long runway for 30% growth and ever-improving margins and profitability.”

Further Research Material

Wrapping Up This Week’s Value Investing Letters: What To Read Next

Our team is currently in the midst of our 2023 Macro Regime Shift preparations. 

If you’d like to join us and make sure your portfolio is protected in the coming year, make sure you enroll in the Macro Ops Collective. Enrollment will be opening next week on Monday, December 26th

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Thanks for reading, and I hope you learned something. If you enjoy this series, let me know by shooting an email or retweeting on Twitter. 

Also, please let me know if there’s an investor letter I should read that I didn’t cover here.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


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