YB new stock pitches (Mon, Feb 2)

Applied Optoelectronics (AAOI) is a vertically integrated optical transceiver manufacturer benefiting from AI datacenter buildout, with two revenue engines: datacenter optics (transceivers at 100G, 400G, 800G, and 1.6T) and CATV/broadband infrastructure. Q3 2025 revenue surged 82% year-over-year to $118.6M with mix at 60% CATV ($70.6M) and 37% datacenter ($43.9M), while non-GAAP gross margin reached 31% with a long-term target of 40% as higher-speed products increase mix. The company is ramping 800G capacity from 35,000 units/month currently to over 200,000 units/month by mid-2026, with 400G capacity targeting 110,000-120,000 units/month by Q2 2026, and 1.6T sampling expected Q1 2026 with volume production by June-July 2026. AAOI's Sugar Land, Texas manufacturing facility anchors their domestic supply chain strategy, producing advanced transceivers with internal laser capacity scaling to 2 million lasers/month by December 2026. Q4 2025 revenue guidance is $125M-$140M with initial 800G contribution of $4M-$8M, and the company ended Q3 with $150.7M in cash after raising $147M via ATM offering. Key risks include execution on yield control, delivery cadence, and maintaining quality at volume as speeds increase, while the bull case centers on durable hyperscaler supply chain placement through consistent operational performance. The investor owns shares and plans to add on execution proof, viewing this as a high-volatility position where operational metrics drive stock performance.

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MTY Food Group Inc. (MTY.TO), a Canadian food franchising royalty business trading at $42 CAD, owns approximately 7,000 stores across 80 brands generating $6 billion in system-wide sales, with the company receiving $1.2 billion and producing roughly $140 million in free cash flow. Trading at 7x free cash flow (approximately 14% yield), the company has historically grown cash flow 15-20% annually through disciplined acquisitions, functioning as a cash-generative roll-up machine founded by Hong Kong immigrant Stanley Ma who built it from one restaurant over 20 years. The business model operates as a royalty stream where mostly immigrant franchisees run individual stores under 10-year contracts with government-backed financing, while MTY clips consistent franchise fees with minimal capital requirements. Multiple bidders are reportedly offering low-50s CAD (versus current $42 trade), representing 25% quick upside potential, with the sale likely driven by founder Stanley Ma's retirement, age, and health issues rather than business fundamentals. The company survived COVID-19 without cash flow disruption, maintains a 7% distribution yield through dividends and buybacks, and recently started share repurchases as management believes buying back stock is more attractive than acquisitions at current multiples. Key brands include Thai Express, Papa Murphy's pizza, Cold Stone Creamery, and various snack concepts, with the top 10 brands representing two-thirds of system sales. Robert Leitz of iolite Capital views this as an attractive long-term hold trading at 25-30% expected yield (free cash flow plus growth), believes even $52 CAD would be a steal for control buyers who could achieve 20% leverage returns, and sees the company as undervalued due to structural market dynamics ignoring small-cap restaurant businesses despite the defensive nature of the royalty model.

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Scholastic Corporation (SCHL), a publishing company with a niche in elementary school book fairs, is trading at 0.53x price-to-sales compared to its longer-run average of 1.15x, representing 139% upside potential on mean reversion within the undervalued publishing sub-industry. The company owns valuable intellectual property including Dog Man and The Hunger Games franchises and is pivoting into digital media. While revenue declined in 2024, Scholastic returned to growth in 2025, and the stock presents a 'safe double' opportunity compared to riskier investment alternatives, though the publishing industry faces obvious competitive pressures from internet-based competitors.

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