YB new stock pitches (Wed, Feb 11)

Richardson Electronics (RELL), an electronics component manufacturer trading at <1x sales, 1x tangible book value, and <8x normalized earnings, represents a new position opportunity with 22%-145% upside potential based on price targets of $13.86-$27.80 by 2027-28. The investment thesis centers on a V-shaped recovery in the high-margin semiconductor wafer fabrication business (within PMT segment) projecting 100% revenue growth from $20M to $40M as AI-driven demand rebounds, with RELL serving as primary supplier to LAM Research and benefiting from significant operating leverage at scale. The Green Energy Solutions (GES) segment is driving double-digit growth with 30% margins, fully exposed to secular themes including grid modernization, energy storage, and wind energy through products like the ULTRA3000 pitch energy modules that replace lead-acid batteries in wind turbines. A key catalyst is the complete divestiture of the unprofitable healthcare division by Q4 FY2026, removing margin drag and adding ~$0.15 EPS boost from elimination of $3M annual operating losses. The company operates with no debt and 20% of market cap in cash, providing downside protection at current levels near tangible book value, while management execution concerns and the cyclical nature of the semiconductor business present key risks to the thesis.

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Galaxy Gaming (GLXZ), originally subject to a $3.20 cash buyout by Evolution announced in July 2024 at a 100%+ premium, now trades around $2.00 after Nevada gaming regulators issued Notice #2026-04 in January 2026, creating new hurdles for companies operating in prohibited jurisdictions including China, Iran, Russia, and others. Evolution faces scrutiny due to previous allegations from a Black Cube report (commissioned by competitor Playtech for £1.8 million) claiming Evolution's games reached sanctioned markets, though New Jersey and Pennsylvania investigations found no evidence of wrongdoing. On Evolution's recent Q4 2025 earnings call, management indicated the $85 million Galaxy deal is not important enough to justify exiting profitable markets or making major business model changes, signaling potential unwillingness to meet Nevada's conditions. The merger agreement includes a $5.2 million break fee if Evolution fails to get gaming approvals, with the outside merger date extended to July 17, 2026, and only Nevada and Louisiana approvals remaining. Trading at $2.00 versus the $3.20 deal price offers 60% upside if approved versus approximately 25% downside to standalone value around $1.50, with the market pricing roughly 2/3 chance the deal fails, while Galaxy has refinanced its debt with better terms and maintains value as a standalone niche gaming supplier with 130+ global licenses.

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Auna S.A. (AUNA), a healthcare facilities operator in Peru, Mexico, and Colombia, trades at 0.30x price-to-sales versus the healthcare facilities sector's 27-year average of 1.70x, presenting a compelling undervaluation opportunity. The company benefits from potential conservative political wins across Latin America, with Peru experiencing a conservative landslide and Colombia's election showing Valencia jumping from 13% to 56% in prediction markets, while the commodity supercycle could boost revenues and strengthen local currencies against the dollar, providing outsized returns for US-listed shares. AUNA generates approximately $270 million in EBITDA with 22% margins (up from 12.5% in 2017), maintains $90 million in cash against a $356 million market cap, and is deleveraging from 3.6x net debt/EBITDA toward a sub-3.0x target, with recent debt refinancing improving from 10% to 8.75% coupon rates. The company's multi-country presence enables efficiency gains through suspected teleradiology services and benefits from medical tourism growth in Mexico and Colombia, while management guides for strong 2026 organic growth following 2025 weakness in Mexico. With executives owning 9% and private equity firm Enfoca holding 43%, management has acknowledged the unacceptable share price and committed to action, potentially including buybacks, leading to a price target of $21 by 2028 versus the current $4.78, based on conservative 5% revenue growth, sustained 22% EBITDA margins, currency appreciation, and re-rating to 1.0x price-to-sales.

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