Palm Valley Capital Management, an investment management firm, released the “Palm Valley Capital Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, Palm Valley Capital Fund appreciated 0.57% compared to an 8.93% decline in the S&P SmallCap 600 and a 6.08% drop in the Morningstar Small Cap Total Return Index. Cash was 77.6% of Fund assets at the start of the quarter and 76.5% at the conclusion. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first quarter 2025 investor letter, Palm Valley Capital Fund emphasized stocks such as Monro, Inc. (NASDAQ:MNRO). Headquartered in Rochester, New York, Monro, Inc. (NASDAQ:MNRO) offers automotive undercar repair, and tire sales and services. The one-month return of Monro, Inc. (NASDAQ:MNRO) was -10.88%, and its shares lost 50.78% of their value over the last 52 weeks. On April 4, 2025, Monro, Inc. (NASDAQ:MNRO) stock closed at $15.27 per share with a market capitalization of $447.744 million.
Palm Valley Capital Fund stated the following regarding Monro, Inc. (NASDAQ:MNRO) in its Q1 2025 investor letter:
“We started four new positions in the first quarter: Forrester Research (ticker: FORR), Monro, Inc. (NASDAQ:MNRO), Reynolds Consumer Products (ticker: REYN), and Flowers Foods (ticker: FLO). Each of these is a relatively small weighting in the Fund. During the quarter we repurchased Monro, a leading operator of retail tire and automotive repair stores in the United States. In fiscal year 2024, Monro operated 1,288 stores in 32 states and serviced 4.7 million vehicles. Monro’s automotive repair business has benefited from the rising average age of vehicles and the record number of vehicles on the road. However, even with these tailwinds, revenue and earnings have recently been under pressure. Many of Monro’s customers have been suffering from the rising cost of living, and as a result, have been delaying automotive repairs and trading down to lower-priced tires. These trends contributed to Monro posting low to mid-single digit same-store sales declines over the past year, sending shares to multiyear lows.
Although trends appear to be stabilizing, for Monro to achieve its double-digit operating margin goal, further improvements in same-store sales will be needed, along with the return of higher-margin tire sales. This will take time. However, given the necessity of auto repairs and tire replacement, we expect operating results will eventually recover. Despite recent challenges, Monro has continued to generate meaningful free cash flow, which has been used to reduce debt, pay dividends (7.6% current yield), and buy back stock.”
A car in a service bay being inspected by a technician for a routine maintenance service.
Monro, Inc. (NASDAQ:MNRO) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 21 hedge fund portfolios held Monro, Inc. (NASDAQ:MNRO) at the end of the fourth quarter which was 17 in the previous quarter. While we acknowledge the potential of Monro, Inc. (NASDAQ:MNRO) 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.
We covered Monro, Inc. (NASDAQ:MNRO) in another article, where we shared the list of automotive stocks that have been plunging in 2025. In the fourth quarter of 2023, Palm Valley Capital Fund bought and quickly sold Monro, Inc. (NASDAQ:MNRO) with in the same quarter as it rebounded and exceeded the fund’s calculated valuation. 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.