YB new stock pitches (Tue, Nov 4)

Vera Bradley (VRA), a women's handbag and accessories designer, trades at $2.25 per share with a $63 million market cap, offering significant downside protection through $50 million in real estate assets and $100 million in inventory, trading below its $2.90 tangible book value. The company recently listed its headquarters for $29.5 million in a sale-leaseback transaction and owns an additional distribution center worth an estimated $20 million, providing potential liquidation value of approximately $3.60 per share versus the current $2.25 price. Activist investor Fund 1 Investments, holding a 10% stake with 20% economic exposure, is pushing for a sale of the company to unlock shareholder value. The turnaround is showing positive signs with web traffic returning to growth in October 2024, recent collaborations like Gilmore Girls selling out quickly, and the Original 100 handbag selling out half its styles in under two weeks, while operating losses narrowed to just $1 million in the last quarter. Bull case scenarios include returning to historical $400 million revenue levels with 10% EBIT margins on the current reduced cost base, potentially generating $1.00 in EPS at a 10x multiple for significant upside, while the base case of returning to prior profitability levels could yield $0.45 EPS plus $30 million in cash ($1.00 per share) for potential doubling of the stock price.

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Velo3D (VELO), a metal additive manufacturing company trading at ~$99 million market cap, underwent a major transformation when new CEO Dr. Arun Jeldi restructured the debt-laden 3D printer company into a digital foundry platform through an $22.4 million debt-for-equity exchange that gave his company Arrayed Additive 95% ownership. The company pivoted from selling expensive 3D printers to a manufacturing-as-a-service model centered on Rapid Production Solutions (RPS), where customers buy machines that remain at Velo3D's facilities for on-demand part production, creating recurring revenue and better utilization. RPS bookings jumped 79% quarter-over-quarter with 90% growth from space and defense clients, while operating expenses dropped 40% year-over-year to $8 million quarterly. Management guides for $50-60 million in 2025 revenue, targeting $65-80 million in 2026 and EBITDA-positive by 1H 2026, with gross margins above 30% aided by a 15% margin boost from relocating out of California. The company's backlog grew to $17.8 million and serves major clients including SpaceX, Honeywell, and Lam Research, leveraging proprietary software (Flow and Assure) that creates digital twins for full part traceability. Trading at 1x 2026 sales versus a estimated fair value of $275-300 million, key risks include execution on scaling, liquidity concerns with cash under $1 million, 87% customer concentration in space/defense, competition from Desktop Metal and others, supply chain scaling challenges, government budget timing delays, and integration risks with Arrayed Additive.

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Key Tronic Corporation (KTCC), a top-10 U.S. contract manufacturer, trades at a crisis valuation of 0.30x P/TB with a $36 million market cap and $139 million enterprise value despite strong asset backing, reflecting market fears over its high leverage (89% net gearing, 10x ND/EBITDA, only $1.4 million cash). The company faces significant risks from its $104 million net debt and history of covenant breaches, but is positioned to benefit from reshoring/nearshoring trends and recently opened a new $28 million flagship facility in Springdale, Arkansas that expanded U.S. production capacity by 40%, whose startup performance could determine the stock's success or failure. In a decent scenario, tangible book value growth to $11.6 per share (2% CAGR) by FY28 with reduced net gearing below 70% and EBITDA restored to $15 million could drive P/TB to 0.50x for a $6 price target (+20% CAGR), while an optimistic scenario with successful Springdale operations and reshoring volumes could rebound sales to $600 million with 4% EBIT margins ($24 million EBIT), implying an $9.3 price target (+40% CAGR over three years). The company is a compelling acquisition candidate given potential annual synergies of $5-7 million, with precedent from a 2017 unsolicited offer at 50% premium and a recent acquisition of peer Sigmatron at 0.32x P/TB, though downside risks include potential dilutive equity issuance if lender tolerance reaches limits.

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