Following Fireside Chat, A Comprehensive Review of A Microcap’s Transformation as a Service Provider in Data Center Space [GeoWire Weekly No. 152]

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The smaller cap indexes like the Russell 2000 (IWM)  and iShares Micro-cap ETF (IWC) continue to tease the market. Almost every rally, whether short or longer, is met with a pullback that threatens to erase the year-to-date (YTD) gains these indexes have finally achieved:

Just last week, the Russell 2000 was down 5.31%, while the IWC fell 6.02%. They are both holding on to small YTD gains of 4.2% and 1.46%, respectively. So, what’s going on? 

In our opinion, what we are seeing here is the lack of quality stocks that occupy these indexes. As long as quality, versus speculation, remains the focus of investors, we think these types of reversion to the mean moves after rallies will continue to happen. 

For example, the MS Microcap quality index (MSMqi) is the only quality-based microcap index that combines multi-bagger factors to determine a stock’s eligibility to be included in the index. MSMqi’s YTD return of 36.43% off its YTD high of roughly 40% reached as of August 30, proves quality matters. While the MSMqi does move with the ebbs and flow of the market, it does prove that quality is creating sustained alpha. The MSMqi currently contains 97 stocks.

Will these scenarios continue to play out in this manner when the feds start lowering rates? Who knows –  maybe over-speculation will return, bringing biotechs, sales growth over net income, pump & dumps and big caps that load up their balance sheets with debt back into the lead position.

But one thing is for certain. Since 2022, when the MSMqi was launched, quality has mattered, and we think its imprint as part of a successful stock picking strategy is here to stay. So, that’s where we will continue to focus our efforts… investing in high-quality microcaps. By the way, this does not mean we won’t invest in more speculative stories. It just means there has to be a level of quality associated with it or coming  soon, and as you know, we also like investing in high probability microcap turnarounds.

So, on that note, it’s a good place to segue into a turnaround story unfolding at a power solutions-focused company entering the data center market segment that could help the company reignite growth and reach profitability The company has not inflected to profitability yet, but we are waiting to see if the things management is doing will allow the company to reach break-even results, anytime soon.

Continue to watch clips from a Fireside Chat we had with the company and read some of our key takeaways

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The post Following Fireside Chat, A Comprehensive Review of A Microcap’s Transformation as a Service Provider in Data Center Space [GeoWire Weekly No. 152] appeared first on GeoInvesting.