In every field, success isn’t limited to one method. This principle holds particularly true for investing – there are various strategies that can lead to success.
That is a theme that has been touched upon by Mark Coe, Founder & Chief Investment Officer of Intrinsic Edge Capital Management, who noted that there are “so many different ways to invest.”
As for Intrinsic and Coe’s style, the investing house dubs itself a “fundamental, catalyst driven investment firm” and as of the end of last year managed assets worth around $926 million.
Coe highlights the extensive research and trade checks conducted by the company to discern how factors are “tracking particularly against consensus or outside expectations,” with the aim of pinpointing companies where Intrinsic’s evaluation differs from the prevailing consensus.
In Q4, the firm loaded up on a pair of names that evidently meet their investing criteria – SoundHound (NASDAQ:SOUN) and indie Semiconductor (NASDAQ:INDI) are both small caps and Coe spent millions buying shares over the period.
Adding to the good news, these Buy-rated tickers offer solid upside potential and won’t break the bank, with each trading for less than $10 per share. Let’s take a closer look.
SoundHound AI
We’ll first take a look at SoundHound AI, a pioneering tech company specializing in sound recognition and voice-enabled AI solutions. Leveraging cutting-edge machine learning algorithms, SoundHound AI developed a robust platform capable of accurately identifying songs, music, spoken queries, and even hummed tunes with remarkable precision. In 2015, SoundHound achieved a significant milestone by being the first music recognition service to be integrated into cars, through a collaboration with Hyundai, featured in its Genesis model.
SoundHound AI’s tech works beyond music recognition, powering voice-enabled AI assistants and automotive integrations and enhancing user experiences across various industries, from automotive to IoT devices to restaurants. Talking of the latter, last December, the company bought out SYNQ3 Restaurant Solutions, a company specializing in voice AI solutions tailored for the restaurant industry, for a total of $25 million.
SOUN has been in the spotlight this year after it turned out AI leader Nvidia had made a small investment in the company. As a result, the stock became one of the hottest names in the market, climbing by 171% since the turn of the year.
Coe must like what’s on offer here, as during Q4, he bought 1,566,238 shares, upping his firm’s stake in SOUN by 48%. Overall, Coe’s Intrinsic holds 4,848,211 shares, which are now valued at over $27 million.
SOUN’s huge AI-boosted gains have come even in the face of a Q4 report that came in below Street expectations, with the company slightly missing both on the top and bottom line. Revenue increased by an impressive 80.5% year-over-year to $17.15 million, falling just shy of the consensus estimate by $0.6 million. Q4 GAAP EPS of -$0.07 missed by $0.01.
That, however, is less of an issue for Wedbush analyst Daniel Ives, who liked the quarter’s results and points out the strong prospects for SOUN.
“The company provided its FY24 revenue guidance of $63.0 million to $77.0 million which was in line with the Street’s estimate of $69.7 while also providing its initial FY25 revenue guidance of $100+ million and expects to see positive adj. EBITDA as the company is well-positioned to capitalize on the demand for AI chatbots with a strong focus on partnerships and more use cases being provided while expanding its voice-enabled ecosystem to accelerate growth and margins,” Ives said. “Overall, this was a solid print and guide as the company continues to build toward profitable growth with stable revenue pillars and strong monetization capabilities to capture demand from small players to major enterprises as management across industries seeks ways to optimize efficiencies.”
Conveying his confidence, Ives rates SOUN shares as Outperform (i.e., Buy), while his $9 price target factors in one-year returns of 57%. (To watch Ives’ track record, click here)
Overall, 6 analysts have recently waded in with SOUN reviews and these breakdown into 4 Buys and 1 Hold and Sell, each, all coalescing to a Moderate Buy consensus rating. The stock is selling for $5.71 and its $7.25 average price target suggests a potential upside of 25% in the next 12 months. (See SOUN stock forecast)
indie Semiconductor
Next up on our Coe-endorsed list is indie Semiconductor, which bills itself as a “pure-play automotive fabless semiconductor company.” That is, indie specializes in customized solutions aimed primarily at the auto industry and tailored to specific automotive applications, such as advanced driver assistance systems (ADAS), in-vehicle networking, and electrification.
Indie’s client portfolio includes major automotive OEMs and Tier 1 suppliers, with the company boasting that all of the top OEMs make use of its devices, that it has shipped a total of more than 200 million chips to date, estimating that at least 1 in every 4 new vehicles includes an indie device.
And looking at the company’s numbers, it’s fair to say demand for its products has been growing. indie’s revenue haul has been consistently increasing and that was the case again in the latest quarterly readout, for 4Q23. Revenue reached $70.1 million, amounting to a 112.4% year-over-year increase and a 16% sequential uptick, although the figure missed the Street’s call by $2.45 million. On the bottom line, adj. EPS of -$0.01 met analyst expectations. However, the company provided a disappointing outlook. Due to market seasonality and current industry softness, revenue for Q1 is expected to reach $56 million, up by 38% YoY but amounting to a 20% quarter-over-quarter drop, thereby halting its long-standing sequential increase streak.
Meanwhile, Coe has been growing his INDI stockpile. He purchased 1,648,818 shares in Q4, marking a 133% increase in his firm’s INDI holdings. Overall, Intrinsic holds 2,893,484 INDI shares, which command a market value of over $20 million.
Mirroring Coe’s confidence, Roth MKM’s Suji Desilva, an analyst ranked in the top 3% of Street pros, sees the picture improving as the year progresses.
“We believe 1Q24 will represent a revenue trough and expect robust 2H24 revenue recovery with incremental ramp contribution from new programs,” the 5-star analyst said. “While the accompanying transition to cash flow break-even is now pushed out to lateCY24/early-CY25, we remain confident in the margin expansion opportunity for the company… We continue to believe INDI is well positioned to help automotive companies implement key newer features in L2+/L3 automotive models that are in the market today.”
These comments form the basis for Desliva’s Buy rating and accompanying $10 price target. If his target is achieved, investors could realize a potential total return of 43% over the next 12 months. (To watch Desliva’s track record, click here)
Overall, the Street is bullish here. Based on Buys only – 4, in total – the stock claims a Strong Buy consensus rating. The stock’s $7 trading price and $13.83 average price target combine to suggest a robust 97% upside potential, even more bullish than Desliva would allow. (See INDI stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
