Greystone Capital Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. During the third quarter of 2021, returns for separate accounts managed by Greystone Capital ranged from +0.06% to +5.4%. The median account return was +2.9%, net of fees. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.
Greystone Capital Management, in its Q3 2021 investor letter, mentioned Research Solutions, Inc. (NASDAQ: RSSS) and discussed its stance on the firm. Research Solutions, Inc. is a Henderson, Nevada-based IT service management company with a $68.6 million market capitalization. RSSS delivered a 10.94% return since the beginning of the year, while its 12-month returns are up by 15.92%. The stock closed at $2.57 per share on November 1, 2021.
Here is what Greystone Capital Management has to say about Research Solutions, Inc. in its Q3 2021 investor letter:
“I added to client positions in Research Solutions following a strong Q4 report and after having a chance to digest the recent management changes announced in March of this year. On the surface, these changes don’t reveal much for this sleepy microcap, but actually point to a significant development within the business and the continued realization of the initial thesis in place when I first started purchasing shares in 2018. My apologies to clients, however, as you won’t be able to talk about this particular investment at your next in person gathering, unless you’re interested in putting the guests to sleep. I’d love to talk about it, however, as this tiny document delivery company has made a strong transition toward nurturing their fast growing, high gross margin platform business that has become quite an industry presence, working with over 70% of the top 25 pharma companies in the world and currently generating nearly $6mm in annual recurring revenue.
The management changes mentioned above include founder and former CEO Peter Derycz (currently the largest shareholder) stepping into a Chairman role with interim CEO/board member Roy Olivier being elevated to the CEO post on a permanent basis. Peter will continue to oversee product development, while new CEO Roy Olivier brings experience from ARI Network Services, a business he grew from $15 million in revenues to over $100 million before being acquired by private equity firm True Wind Capital. While at ARI, Roy executed a playbook consisting of complementing organic growth with accretive M&A and now brings his skillset to RSSS where during the company’s Q4 results presentation, he announced an ambitious but achievable target for the Platforms business to achieve $20mm in annual recurring revenue by 2024, up from $6mm today. Should he achieve that goal, I believe the strength of the Platform business will continue to shine through and the market will value that (now free cash flow generative) business alongside its peers at 7-8x revenues, reflecting a value – saying nothing about the Transactions business – higher than the current enterprise value of the company today.
While results won’t be linear, and FY22 points to more of a build year in terms of elevated costs related to investments in people and product, RSSS is on track to generate a decent amount of free cash flow within the next few years, with a renewed focus on business strategy and a path to 100%+ returns moving forward.”
Photo by Danial Igdery on Unsplash
Based on our calculations, Research Solutions, Inc. (NASDAQ: RSSS) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. RSSS was in 4 hedge fund portfolios at the end of the first half of 2021, compared to 2 funds in the previous quarter. Research Solutions, Inc. (NASDAQ: RSSS) delivered a -0.19% 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.
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Disclosure: None. This article is originally published at Insider Monkey.
