YB new stock pitches (Tue, Sep 23)

Alta Fox is buying DexCom (DXCM) following a weak short report characterized by tabloid sensationalism and cherry-picked data, with the author displaying a fundamental misunderstanding of diabetes management by citing unverified MAUDE data that the FDA warns should not be used for product comparisons and presenting anecdotal evidence like blood sugar readings taken 50 minutes apart as proof of device failure. The short seller's claims about 'severe signal loss' ignore normal Bluetooth range limitations, while their allegations about aggressive accounting are factually incorrect and overlook DexCom's improved cash conversion cycle from -127 days to -147 days between Q1 and Q2, driven by significant improvements in finished goods inventory and better working capital management despite rising DSO due to growing pharmacy channel payment terms being offset by meaningfully higher DPO. Alta Fox views this as a buying opportunity for a good, growing business trading at roughly half the forward multiple of competitor Tandem Diabetes (PODD), dismissing the short report as a scare campaign lacking credible evidence rather than serious analysis.

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Cogent Communications Holdings (CCOI), an internet service provider carrying nearly 25% of the world's internet traffic, launched Wavelength Services, a new high-capacity, low-latency optical networking service that provides dedicated, secure bandwidth with high reliability by delivering multiple private circuits over a single pair of optical fibers for existing customers. Despite high expectations for this new service as a growth driver, the company missed initial growth expectations, causing the stock to drop sharply, though management indicates this fast-growing revenue line is experiencing growing pains. The investment team used this weakness as an opportunity to add to their CCOI position, believing the market overreacted to what they view as early challenges in a small but rapidly expanding business segment.

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Avio S.p.A. (AVIO.MI), Europe's sole designer and producer of solid rocket motors for space launchers and defense missiles, is positioned to capitalize on a critical U.S. Department of Defense supply chain bottleneck where domestic producers face an annual shortfall of 3,000-4,000 tons of propellant. The company serves as prime contractor for Europe's Vega launcher and provides boosters for Ariane 6, while building motors for MBDA's Aster-30 and CAMM-ER missiles, creating a strategic moat through its essential role in European space and defense capabilities. Avio has already secured partnerships with the U.S. Armed Forces, U.S. Army, and Raytheon, with first-half 2025 revenues up 30% year-over-year and a €1.7 billion backlog. Management guides for 10% annual revenue growth and over 15% compound EBITDA growth through 2030, with the high-margin defense business expected to grow from 20% to 50% of revenue mix by 2030. The company is raising €400 million primarily to build a new U.S. facility operational by 2028 with 700 tons of annual propellant capacity, while trading at approximately 15 times current EBITDA despite its fixed-cost base now being fully covered and potential to triple revenue with dramatically expanding profits as incremental defense revenues flow directly to the bottom line at high margins.

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