Laughing Water Capital, an investment management firm, published its first quarter 2021 investor letter – a copy of which can be downloaded here. A net return of 25.8% was delivered by the fund for the Q1 of 2021, ahead of its S&P 500 and Russell 2000 benchmark that delivered a 6.2% and 12.7% return respectively in the same period. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Laughing Water Capital, in their Q1 2021 investor letter, mentioned Rimini Street, Inc. (NASDAQ: RMNI) and shared their insights on the company. Rimini Street, Inc. is a Las Vegas, Nevada-based software company that currently has a $702.5 million market capitalization. Since the beginning of the year, RMNI delivered a 88.26% return, extending its 12-month gains to 102.92%. As of April 23, 2021, the stock closed at $8.34 per share.
Here is what Laughing Water Capital has to say about Rimini Street, Inc. in their Q1 2021 investor letter:
“Rimini Street (RMNI) – Rimini was first introduced to the partnership in the summer of 2018 via a slide deck that I put together for the Value X Vail conference. Had we held shares straight through from that time we would have earned perhaps a low teens CAGR. However, in the interim it became clear that my initial assumptions around growth were considerably misguided, and I previously sold shares at a loss. This is particularly painful because I feel as if I am the only person to manage to lose money on a recurring revenue tech stock over the last decade. Nevertheless, despite my error around growth assumptions, I believe my analysis of the quality of the business and its competitive position were sound, and I once again made Rimini a mid-sized position early this year, with more sensible growth estimates in mind.”
In brief, Rimini primarily provides third party maintenance for Oracle, SAP, and other software. Rimini’s business model is essentially “better service at a lower price,” which is very difficult to compete against. Oracle is known to be perhaps the most litigious corporate entity on the planet, and Rimini and Oracle have been locked in litigation for years. While this litigation has been an enormous drain on Rimini resources and capital, it has also acted as a nearly impenetrable moat because potential competitors have been unwilling to deal with the threat of litigation. As a result, Rimini now commands a near 90% market share position in a market that Gartner estimates will continue to grow at a near 30% rate for the next few years, and likely beyond. As for the litigation, the court has already ruled that Rimini has the right to provide third party support; only the manner in which it is provided is in question. As such it seems as if the risk is primarily around potential margin contraction should Rimini need to amend its processes. While this would clearly not be ideal, given the dominant competitive position, continued market expansion, and clear pricing advantage vs. the software OEMs, it seems as if Rimini is well positioned to deal with the potential for margin compression. Following the removal of the litigation overhang I would expect shares to re-rate considerably higher to reflect the recession resistant recurring nature of the company’s revenues, its dominant competitive position, and its long runway for growth.”
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Our calculations show that Rimini Street, Inc. (NASDAQ: RMNI) does not belong in our list of the 30 Most Popular Stocks Among Hedge Funds. As of the end of the fourth quarter of 2020, Rimini Street, Inc. was in 11 hedge fund portfolios, compared to 9 funds in the third quarter. RMNI delivered a 13.78% return in the past 3 months.
The top 10 stocks among hedge funds returned 231.2% between 2015 and 2020, and outperformed the S&P 500 Index ETFs by more than 126 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Here you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.
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Disclosure: None. This article is originally published at Insider Monkey.
