YB new stock pitches (Fri, Sep 19)

Shift4 Payments (FOUR), a payments processing company founded by CEO Jared Isaacman that serves restaurants, hotels, stadiums, and other businesses, is trading at 13x EBITDA while growing 30%, with Isaacman recently investing $16 million of his own money at $83 per share. Management targets $1 billion in free cash flow by 2027 (approximately $10 per share), but even at a conservative $800 million FCF ($8 per share), the stock would trade at roughly 10x compared to its historical 30x multiple, suggesting 3x upside potential. The company has demonstrated strong M&A execution with attractive ROIC, maintains a solid balance sheet with manageable debt and growing cash flow that funds growth without requiring outside capital, and trades at 12x forward earnings versus the S&P 500's 23x despite offering much higher growth. The asymmetric risk/reward setup is supported by management's significant capital commitment, conservative valuation assumptions, and the substantial discount to historical multiples, creating an attractive investment opportunity where upside significantly outweighs downside risk.

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Revolve was the portfolio’s only decliner during the quarter after management noted an April slowdown to mid-single-digit revenue growth from double digits the prior month and gave initial tariff-impact guidance. Since then, the company has indicated a return to double-digit growth and more limited cost headwinds following reduced China-related tariffs, yet the stock remains under pressure; we added to our position at what we believe are highly attractive valuations.

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Gladstone Land Corporation (LAND), a farmland REIT with 67% California exposure worth 2.5x its market cap, faces significant headwinds from immigration raids creating labor shortages, water rights restrictions from groundwater management laws, and fruit fly infestations in key geography Kern County which alone represents 48% of the company's market cap. The company is highly leveraged at 14x debt and preferred-to-EBITDA with $529M mortgage debt and $461M preferred stock against only $63-64M EBITDA, making it difficult to reduce leverage given REITs must pay out 90% of taxable income. Operating metrics are deteriorating with occupancy falling to 96% from historic 99-100%, rising vacancies across 10 properties encompassing 14 of 150 farms that are vacant or non-accrual, declining NOI, and 12 permanent crop farm lease renewals showing 8.6% NOI decline. Peer FPI marked down California farms by 50% in recent quarters and is reducing California exposure, while LAND discontinued reporting NAV calculations that fell from $20.33 to $14.91 (-27%) before being stopped in Q1/25. The dividend appears uncovered by current earnings with $28M debt due over 12 months, and the company pays costly 10% commissions on preferred stock while trading at 20x EBITDA despite these distress signals. Bull case risks include favorable crop mix of higher-margin fresh produce and permanent crops, potential redevelopment value near urban centers, decreasing farmland supply, and technology/automation improvements, but catalysts for downside include further California labor/water pressures and a potential dividend cut.

Read the full article here. Read time: 8 min