Artko Capital LP, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A return of 30.9% was delivered by the fund for the first quarter of 2021, outperforming the S&P 500 Index, also the Russell 2000, and Russell Microcap Index, that delivered a 6.2%, 12.7%, and 23.9% return respectively for the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Artko Capital, in its Q1 2021 investor letter, mentioned HireQuest, Inc. (NASDAQ: HQI), and shared their insights on the company. HireQuest, Inc. is a Morrisville, South Carolina-based labor and commercial staffing solutions provider that currently has a $292.3 million market capitalization. Since the beginning of the year, HQI delivered a 110.28% return, impressively extending its 12-month gains to 238.53%. As of June 22, 2021, the stock closed at $21.48 per share.
Here is what Artko Capital has to say about HireQuest, Inc. in its Q1 2021 investor letter:
“HireQuest (HQI ) – Our biggest contributor to our portfolio’s performance this past quarter was a 90% run up in the small cap franchisor of staffing branches. Our original thesis that the reverse merger with Command Center and the subsequent franchise sales of those branches would add to HireQuest’s own franchised brand network would result in a very high margin business which would throw off significant cash flow. The thesis was playing out as expected prior to the Covid-19 pandemic, which certainly curtailed demand for on-demand staffing, especially in the event space where HQI had a large presence. However, the company, led by their impressive CEO, Richard Hermans, and their solid cash positive balance sheet, navigated the tumultuous waters of the past year with $9mm positive cash flow and, in the 1st quarter, added two “tuck in acquisitions” in the South, that increased its system-wide sales by 50%. Between the acquisitions and its own base business, the company is still operating 50% below its pre-pandemic levels while generating impressive cash flow ($4mm in 1Q ex acquisitions). With the United States “open for business” we expect the rest of year to go gangbusters, especially with the increasing demand for labor, and expect this $250mm market cap company to potentially generate over $30mm in Free Cash Flow in the next twelve months. While we have certainly enjoyed the 200%+ return we have had in the holding so far, we expect at least another 100-
200% in the intermediate future as the market recognizes the operating leverage and the cash flow generating potential for this impressive company.”
Our calculations show that HireQuest, Inc. (NASDAQ: HQI) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the first quarter of 2021, HireQuest, Inc. was in 3 hedge fund portfolios, compared to 1 fund in the fourth quarter of 2020. HQI delivered a 26.13% return in the past 3 months.
Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.
At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, an activist hedge fund wants to buy this $26 biotech stock for $50. So, we recommended a long position to our monthly premium newsletter subscribers. We go through lists like the 10 best battery stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.
Disclosure: None. This article is originally published at Insider Monkey.
