Baron Funds, an asset management firm, published its “Baron Small Cap Fund” third quarter 2021 investor letter – a copy of which can be downloaded here. A return of 1.32% was delivered by the fund’s institutional shares for the third quarter of 2021. For the first nine months of the year, the Fund is up 10.65%. The Fund soundly beat the performance of the Russell 2000 Growth Index (the “Index”) in the quarter, which was down 5.65%, and for the year, with the Index up just 2.82%. The S&P 500 was up 0.58% for the quarter and is up 15.92% for the year, as large-cap stocks have outpaced small caps this year. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Baron Small Cap Fund, in its Q3 2021 investor letter, mentioned Holley Inc. (NYSE: HLLY) and discussed its stance on the firm. Holley Inc. is a Bowling Green, Kentucky-based manufacturing company with a $1.4 billion market capitalization. HLLY delivered a 22.78% return since the beginning of the year, while its 12-month returns are up by 24.77%. The stock closed at $12.29 per share on December 09, 2021.
Here is what Baron Small Cap Fund has to say about Holley Inc. in its Q3 2021 investor letter:
“During the quarter, we added to our position in Holley Inc., which traces its roots back to 1903, but recently came public via a SPAC merger with Empower Ltd. Holley is a leading designer, marketer, and manufacturer of high-performance automotive aftermarket products for car and truck enthusiasts, selling 60 iconic brands across many categories and car models. They are the market leader in the space with around $600 million in sales, #1 or #2 market positions in all their major categories (i.e., electronic fuel injection, carburetors), and 3 times the size of their closest competitor. These scale benefits enable Holley to outspend on R&D to continuously innovate with unmatched go-to market capabilities to drive above industry growth. Holley’s Direct-To-Consumer strategy is a core focus, engaging its loyal customer base and transforming the sector with a consumer-first approach driven by innovation (approximately 40% of sales from products introduced in the last five years).
Since 2001, Holley’s core market has grown at a 6.5% CAGR as more than 50 million Americans see their vehicle as more than a means of transportation, 15 million of whom are considered avid enthusiasts. These enthusiasts spend a great deal of time (on average, more than 10 hours per week) and money pursuing their vision of a perfect vehicle, often leading to heightened levels of repeat spending.
Holley has an attractive financial profile with mid- to high single-digit organic revenue growth and EBITDA margins in the mid 20% range that generate strong free cash flow. We expect Holley to grow revenue organically due to its strong innovation pipeline and as it expands into additional categories and vehicle vintages. One example is the emerging performance Electric Vehicle segment, in which Holley can leverage its substantial expertise in electronic controls. Holley’s e-commerce business is growing 2.5 times faster than the market and is its highest margin channel.
We expect Holley to continue its proven acquisition platform (eight acquisitions since 2014) with a robust M&A pipeline. The company has already identified 15 high priority, synergistic acquisitions that will further accelerate growth. We think Holley can grow EBITDA at a 20% clip, including acquisitions, and is trading at a cheap multiple for a market leader with a strong financial profile in a growing, resilient industry.”
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Based on our calculations, Holley Inc. (NYSE: HLLY) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. HLLY was in 15 hedge fund portfolios at the end of the third quarter of 2021, compared to 0 funds in the previous quarter. Holley Inc. (NYSE: HLLY) delivered a 6.22% return in the past 3 months.
You can find more than 100 investor letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q3 page.
Disclosure: None. This article is originally published at Insider Monkey.