YB new stock pitches (Fri, May 15)

Leatt Corporation (LEAT), a South Africa and US-based motocross and mountain biking gear manufacturer, has been established as a small position following its 70% decline from COVID-era highs of $30, now trading at $9 per share with $2 per share in cash. The company, which invented the first neck brace for motocross riders in 2001 and has since expanded into a full-body protection company through consistent R&D-driven product launches, experienced a post-COVID downturn that caused revenues to fall ~40% from FY21 to FY24 while operating expenses increased ~40% due to investments in US sales teams, direct-to-consumer presence, and the new Adventure Riding (ADV) product line. The ADV line, launched in late 2023, has become the company's fastest-ever growing product, expanding from 0% to 15-20% of revenue (~$10 million annualized) in just 18 months with unanimous positive customer feedback, despite having limited SKUs and not yet being available worldwide. FY25 revenue is expected at ~$62 million (+40% year-over-year) with gross margins rebounding to the mid-40s from excessive discounting during FY22-24, while retailer checks, Racer X magazine survey data showing market share gains in every category from 2021-2024, and continued product awards suggest the brand's fundamentals remain strong with the cyclical downturn being industry-wide rather than company-specific. Management indicated the current $21-22 million annual operating expense base can support $70-80 million in revenue, which at 45% gross margins would generate ~$1.75 in EPS versus the current $9 stock price, representing a 4x ex-cash P/E or 3x EV/EBIT, with potential upside to $20-40 if the company achieves $80-100 million in revenue through cyclical recovery and continued ADV momentum (a 10-15x P/E multiple on $1.75-2.50 EPS). The position remains small due to poor liquidity on OTC markets and inability to speak with management, though the risk/reward appears favorable given the strong balance sheet with 20% of market cap in cash, active buyback program, 40% revenue growth in FY25, and limited downside unless a severe recession pushes the company back into losses toward the $6-7 range.

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Playboy Inc. (PLBY) at $1.35 is down 50% from February due to a small-cap selloff and licensing revenue decline, which management attributes to letting low-quality Chinese deals roll off while deleveraging and pausing new UTG deals. The company has an enterprise value of approximately $290 million, with Honey Birdette (HB) worth roughly $70 million and $30 million in UTG cash inflows over the next two years expected to reduce net debt to $85 million, valuing the core PLBY business at $180 million excluding HB. Licensing revenue consists of $50 million+ annually ($33 million guaranteed from Byborg and UTG with upside, plus at least $15 million from others) and is positioned to grow through several catalysts: the magazine relaunch featuring major celebrities like Karol G with sold-out physical print, and paid playmate voting contests that generate seven-figure revenue while building a monetizable user base (the first contest had 17,000 contestants with 1.7 million votes generating seven figures despite technical issues, while the second contest already has nearly double the contestants and should drive several million in incremental revenue). With over $50 million in 85%+ gross margin revenue from Playboy, approximately $12 million in overhead translates to $35 million in EBITDA, which at a 10x multiple equals $350 million plus $75 million for HB minus $85 million net debt, yielding a price target of $2.90 per share representing 120% upside for a business that could grow perpetually with no incremental capital if managed appropriately.

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Stride Inc. (LRN), the largest U.S. K-12 virtual school operator serving over 240,000 students across 30 states, entered the portfolio as a mid-sized holding after shares fell more than 50% due to a botched software upgrade that cost the company upwards of 10,000 enrollments prior to the 2025-2026 school year. The company, which had been growing at mid-to-low teens percent for several years and traded at approximately 14x EBIT after guiding to 10-15% enrollment growth for fiscal 2026, saw its valuation drop below 7.5x EBIT following the software implementation problems where parents could not navigate the enrollment process and students faced login and curriculum access issues. Management responded by initiating a $500 million buyback and moving quickly to fix the software problems, with early indications from both the company and open market sources suggesting progress is being made. The investment thesis centers on whether the company can fix its software issues, with strong underlying demand for virtual schools confirmed by both Stride and key competitors, secular tailwinds from technology advances and post-Covid perception changes supporting the sector, and the current valuation implying either that fixes are impossible or that the market lacks patience to wait for resolution. As fixes take hold and enrollment recovers, shares are expected to re-rate closer to the prior 14x EBIT multiple, with the company distinguished from troubled for-profit education peers by its business model of long-term contracts with school districts rather than reliance on student loans.

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