Merion Road Capital Management, an investment advisor, released its first-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, Merion Road Small Cap Fund returned (7.8%) compared to (9.5%) return for the Russell 2000 Index. The decline was due to small-cap companies’ continuous underperformance relative to their larger counterparts. The long-only portfolio of Merion Road declined (8.2%) during the quarter compared to the S&P 500’s (4.3%) return. The decline was primarily attributable to tech-oriented holdings and economically sensitive industrials. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.
In its first-quarter 2025 investor letter, Merion Road Capital Management highlighted stocks such as Butler National Corporation (OTC:BUKS). Butler National Corporation (OTC:BUKS) designs, manufactures, and distributes a portfolio of aerostructures, aircraft components, avionics, accessories, subassemblies, and systems that operates through two segments, Aerospace Products and Professional Services. The one-month return of Butler National Corporation (OTC:BUKS) was -9.71%, and its shares gained 84.44% of their value over the last 52 weeks. On April 21, 2025, Butler National Corporation (OTC:BUKS) stock closed at $1.55 per share with a market capitalization of $107.28 million.
Merion Road Capital Management stated the following regarding Butler National Corporation (OTC:BUKS) in its Q1 2025 investor letter:
“A company I haven’t previously discussed is Butler National Corporation (OTC:BUKS). BUKS owns a regional casino in Dodge City, KS and an aircraft modification business. While I have tracked the company for many years, I began buying in 2023 following the announcement that their former CEO would step down and sell his shares back to the company (~10% of the shares outstanding). This event removed a key overhang for me – the presence of an entrenched management team with multiple family members on the company payroll. BUKS further strengthened its corporate governance in early 2024 by bringing on two new independent directors, including its largest shareholder. At the annual meeting last year, the company passed a resolution to declassify the board, yet another step in the right direction. Summing up this activity, BUKS executed a large buyback at a fraction of current trading levels, reduced unnecessary overhead, has a highly incentivized board of directors, and is taking steps to improve shareholder friendliness.
While the stock has worked tremendously well, I believe there is still a lot of opportunity ahead. The casino generated about $13mm of EBITDA over the past four quarters. There will be a modest headwind as their gaming tax increases by 2%, but this should be somewhat offset by additional growth in revenue from their sportsbook via their contract with Draftkings. A 6x EBITDA multiple would value this business at almost $80m. A couple sanity checks on this. Firstly, the casino cost nearly $90mm to build in 2008 2009. Secondly, the operating entity purchased the real estate in 2020 at a cost of $41mm, financed via debt. The following year BUKS acquired the outstanding 40% equity interest in the operating entity for $16.4mm in 2021, implying a total value of $41mm. Adding these up we get to $81mm…” (Click here to read the full text)
Butler National Corporation (OTC:BUKS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. While we acknowledge the potential of Butler National Corporation (OTC:BUKS) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
In addition, please check out our hedge fund investor letters Q1 2025 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.