Laughing Water Is Crazy About Iteris Inc (NASDAQ: ITI)

Laughing Water Capital is bullish on Iteris Inc (NASDAQ: ITI), a California company is engaged in providing information solutions for the transportation and agriculture industries. The stock has been performing well for the hedge fund, ending the year with a 75% gain since initiation. In its Q4 investor letter, the fund’s founder and managing partner Matthew Sweeney presented his thoughts on the company. Let’s take a look at his comments.

Iteris is our traffic management business. We have owned the stock for 3 years now, and it has been a bumpy ride. We ended the year with a ~75% gain since initiation, but the stock was down nearly 50% on the year. Most of the damage was done in Q1, and I detailed the temporary problems that the company is facing in our Q1’18 letter. The most notable issue that the stock has faced is that the largest shareholder died, and his estate has been selling shares. This is of course frustrating, but it clearly has no effect on the quality of the business.

Simply stated, when a top 5 position is down 50%, it is going to put a dent in the portfolio. However, while the stock traded down substantially, my view of the intrinsic value of the core transportation businesses has increased, and while this downdraft is a drag on our results in the near term, I have added significantly to the position. It is difficult to put this business into a box as it has elements similar to consulting, government business process outsourcing, and asset light project management, but each of these types of businesses typically trade at high teens to lows 20s cash flow multiples. However, cash flow here is temporarily obscured as management has made the difficult decision to invest for the future, which should

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