Laughing Water Capital, an investment management company, released its fourth-quarter 2023 investor letter. A copy of the same can be downloaded here. In the fourth quarter, investment in the fund returned 3.2% bringing the yearly returns to 11.8%, net of all fees and expenses. The SP500TR and R2000 returned 11.7% and 14.0% during the quarter, respectively, bringing their year-to-date returns to 26.3% and 17.0%. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Laughing Water Capital featured stocks such as Limbach Holdings, Inc. (NASDAQ:LMB) in the fourth quarter 2023 investor letter. Headquartered in Warrendale, Pennsylvania, Limbach Holdings, Inc. (NASDAQ:LMB) is an integrated building systems solutions company. On January 29, 2024, Limbach Holdings, Inc. (NASDAQ:LMB) stock closed at $42.71 per share. One-month return of Limbach Holdings, Inc. (NASDAQ:LMB) was -2.82%, and its shares gained 231.86% of their value over the last 52 weeks. Limbach Holdings, Inc. (NASDAQ:LMB) has a market capitalization of $469.955 million.
Laughing Water Capital stated the following regarding Limbach Holdings, Inc. (NASDAQ:LMB) in its fourth quarter 2023 investor letter:
“Limbach Holdings, Inc. (NASDAQ:LMB) – Limbach is new to the portfolio for the second time. I first purchased shares in 2017, but sold as the management team continuously disappointed vs. expectations. I purchased shares once again as a new CEO began to demonstrate that not only had he solved the problems of the past, but that he was taking the Company in a new direction.
Historically, Limbach operated primarily as a building contractor focused on large scale HVAC projects. These projects often had attractive headline numbers, but in practice were difficult to execute and frequently not very profitable. About two years ago, the Company began to shift the business toward more predictable, higher margin, Owner Direct Revenue and away from the legacy General Contractor Revenue. Under the Owner Direct model, Limbach partners with building owners to save them money by improving the efficiency of their buildings, and maintaining and servicing their equipment. At present the business is approximately 50% Owner Direct and 50% General Contractor, up from about 25% when the Company first formally announced the shift in their strategy. Clearly, the strategy is working.
What this means in practice is that gross margins have improved from the mid-teens to the low-mid-twenties, as the Owner Direct model is solidly more profitable. The Company aims to continue this transition, and expects that with time Owner Direct will be ~80% of their business. Part of the original thesis back in 2017 was that Limbach would be a good platform for bolt on M&A, which would help drive earnings growth. There are many examples of construction linked companies that have executed this playbook very well over long periods of time. However, in the case of old Limbach, bolting on businesses to a core business that could not execute was not practical. New Limbach however is at the point where they can start flexing this muscle, and in fact, they made two small acquisitions in 2023. The combination of continuing to improve their mix, growing organically, and growing through bolt on M&A at attractive multiples should continue to drive free cash flow higher over time, and the continued evolution of the business to higher margin, more predictable, less cyclical maintenance and service work should continue to drive the multiple higher. If this happens and Limbach is valued in line with peers, shares can easily double in the not too distant future. A hat tip to Yaron Naymark of 1Main Capital is appropriate as he encouraged me to revisit Limbach.”
An engineer studying the blueprints of a large mechanical construction near a busy city skyline.
Limbach Holdings, Inc. (NASDAQ:LMB) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 12 hedge fund portfolios held Limbach Holdings, Inc. (NASDAQ:LMB) at the end of third quarter which was 9 in the previous quarter.
We discussed Limbach Holdings, Inc. (NASDAQ:LMB) in another article and shared Greystone Capital Management’s views on the company. In addition, please check out our hedge fund investor letters Q4 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
