The Eternal Debate
Within the investment world, an enduring question persists – is it wiser to back the potential of the industry (the horse) or to trust in the guidance of the company’s leadership (the jockey)? In essence, does the essence of the business or the prowess of its management hold the key to success?
Starbucks Hands Over the Reins
This debate has recently taken the limelight with Starbucks (SBUX) appointing a new CEO, a move that reflects a broader trend in the retail sector of ushering in fresh leadership to revitalize brands.
The Horse: Kingsway Financial Services (KFS)
Kingsway Financial Services (KFS) runs operations through two main segments – Extended Warranty and Kingsway Search Xcelerator (KSX). The former raked in $68.2 million in revenue in 2023, albeit a 7.8% decline from the previous year. On the other hand, the KSX wing saw a significant 81.9% surge in revenue, hitting $35 million for the same period. Interestingly, the KSX strategy adopts a distinctive focus on the jockey over the horse, favoring CEOs sourced from top MBA programs and with a military background.
On the Cusp of Change
KFS stands at a pivotal juncture, awaiting concrete evidence that the acquired companies are on track to meeting performance targets – a factor that influences our current Neutral rating for the stock. Trading at 2.1X trailing 12-month EV/Sales TTM, the stock’s valuation is intriguing, especially against industry benchmarks and historical trading patterns.
The Jockey: TSS Inc. (TSSI)
Contrasting KFS, TSS Inc. (TSSI) embodies the ‘jockey’ analogy. Operating in the burgeoning arena of data centers and AI, the company offers a host of IT solutions tailored to a diverse customer base. The rise in demand for AI infrastructure has been a propellant for TSSI, resulting in impressive financial growth. Notably, the company has made significant strides in expanding production capacity and focusing on high-margin segments to boost profitability.
A Positive Trajectory
With net income soaring by 345% and adjusted EBITDA climbing 62% year-over-year, TSSI stands out as a compelling investment option. Trading at 1.80X trailing 12-month EV Sales/TTM, the stock’s valuation is favorable in comparison to sector and index benchmarks.
Image Source: Zacks Investment Research
Image Source: Zacks Investment Research
