YB new stock pitches (Wed, Jul 9)

Xponential Fitness (XPOF), a franchisor with 80% recurring revenue from high-margin royalties and fees, has faced significant challenges following a short seller attack two years ago, including CEO departure, management turnover, federal and state investigations, lawsuits, and suspended analyst coverage. Despite these headwinds, the company continues to grow same-store sales, system sales, and EBITDA, with Club Pilates representing 60%+ of system sales and 70%+ of profits. The SEC investigation recently closed without action, removing a significant overhang. New management has implemented changes to improve operations, targeting mid-to-high single-digit system sales growth, high-single to low-double-digit revenue growth, 10% EBITDA growth with 40-45% margins, and 50-60% FCF conversion from adjusted EBITDA. With a $450M market cap and $900M enterprise value, XPOF aims to generate $100M in FCF by 2027 (20%+ yield). The CFO has hinted at take-private potential if the stock remains undervalued, acknowledging the company's focus on driving profit and cash generation to increase shareholder value.

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Talos Energy (TALO), an offshore E&P with 194MMBoe reserves (PV-10 $4.4B) and 93Mboe/d production in the Gulf of Mexico, has a history of dilutive acquisitions that increased shares outstanding from 54M in 2019 to 178M currently. The company's new CEO, appointed in March, aims to change direction by focusing on integrating previous acquisitions (potentially adding $100M to FCF by 2026), shifting to longer-lived assets, and returning up to 50% of free cash flow to shareholders. With adjusted annual FCF of approximately $560M, this capital return policy could enable an 18% share count reduction annually through buybacks. The company has already begun modest share repurchases (reducing count by 1% from Q4 2024 to Q1 2025) and maintains a conservative net debt/EBITDA ratio of 0.8x, below their 1.0x target, with no near-term debt maturities. However, investors should monitor Q2 results to confirm management's commitment to meaningful buybacks, as failure to accelerate repurchases would make the stock a 'hard pass.'

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MegaStudyEdu Co. Ltd (215200.KQ), a dominant Korean online education platform with 70%+ market share in the high school segment, generates over 60% of its profits from this crown jewel business after years of industry consolidation, benefiting from economies of scale through lowest content cost per student. Trading at just 5.4x 2025e P/E with a 20%+ free cash flow yield and 20% of market cap in net cash, the company offers an attractive 13-14% annual return profile (9% EPS CAGR + 4-5% dividend yield). Management is committed to returning 60% of profits to shareholders, resulting in an 11% total yield through buybacks and dividends. Unlike typical Korean companies where controlling shareholders prefer low stock prices due to high dividend and inheritance taxes, MegaStudyEdu's founders' best exit strategy is selling to private equity, making aggressive buybacks beneficial for all shareholders. Additionally, the company owns undervalued real estate assets worth approximately $300 million versus their $200 million book value, as many properties haven't been restated on the balance sheet for up to 20 years.

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