October 9, 2014

MicroCapClub Conference Recap.

This past week marked the first installment of the MicroCapClub Conference. Forget the usual soiree of money-starved companies, investment bankers, and IR reps in a posh California hotel. This conference went off in downtown Detroit and paired 14 of the best small-cap companies around with 85 focused investors. It was one heck of a time!

The slate was a good mix of US and Canadian based companies, all generally profitable, growing, and in good financial shape. We saw many of our long-time favorites: Avante Logixx (XX.V), Biosyent (RX.V), XPEL Technologies (XPLT, DAP-U.V), and Microbix Biosystems (MBX.TO), just to name a few. We got 25 minutes with each company –  15 minutes of presentation followed by 10 minutes of Q&A. Think of it like speed dating for investors.

We find conferences like these valuable for two reasons: 1) We get a sense of the business health talking to management and 2) we get a feel for small-cap investor sentiment by speaking with other investors. With The Russell 2000 off 4% YTD and the TSX Venture down even more (-9%), you might think the mood would have been a bit gloomy. Not so.

From what we heard this week, many of these companies are thriving and delivering record quarter after quarter. Biosyent just notched a third straight year of 70% growth. As did XPEL Technologies. And Microbix Biosystems has now doubled their core business in 2 years and is one month away from reporting on their break-through LumiSort technology.

As expected, these high-performance companies have bucked the trend in small-cap stocks. Just look at their relative performance vs the indices:

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The outperformance is staggering. And it’s not just these three companies. Many of the other 11 companies we visited with have outperformed as well.

We feel this year has been a stock picker’s market. Choose steady performers and you have been handsomely rewarded. Overpay for a hyped growth story and you have felt the pain. We continue to believe finding obscure small-caps that under-promise and over-deliver will be the key to outperforming in this environment.

Just remember the next time you hear on the news about “risk-off” or the “rotation out of small-caps,” that there are hardworking management teams out there driving their companies to new heights. The economy remains robust and investors who do their homework should continue to be rewarded in this market. We left more optimistic than ever to be playing in the small-cap space and look forward to seeing what the next year brings for these 14 companies.