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Ryan Modesto is Portfolio Manager for the i2i Long/Short US Equity Fund.

News of SVB Financial Group and Signature Bank failing in the U.S. has likely brought back some dark memories of the 2008 financial crisis. Fortunately, it looks like some lessons were learned back in 2008 by institutions, primarily the idea of acting fast and ‘more is better’ when looking at the range of solutions.

While the story is not over yet, backstopping deposits should go a long way to limiting concerns around the financial system. While the major fire appears to have been extinguished, events like these do always tend to create some opportunities in the way of companies that were wrongfully sold off. With this in mind, we want to dig into companies that have seen a material drawdown in the last month that are not in the financial services sector.

In periods of higher volatility and indiscriminate selling, you can often find companies that have been unduly sold off. Meanwhile, given that events in the financial sector are still very ‘live’ we want to exclude this space to focus on companies that are less likely to have material exposure to the various banks and further cockroaches that may lie in the shadows.

For this month’s screen, we are looking for companies that have positive operating cash flows, expected to grow revenues by over 15% this year, have a one month return of -20% or lower, and have limited exposure to the financial sector.

XPEL Technologies Inc. (XPEL-Q)

XPEL sells paint protection and window films for automobiles, primarily in the U.S. but with some exposure to Canada and China as well. The company has grown revenues in excess of 20% over the last few years and this trend is expected to continue in 2023. The recent drawdown in XPEL was due to its recent earnings report which had a rare miss on earnings per share and revenues versus what the markets expected. While a single quarter miss is unlikely to justify a decline in excess of 20% of a company’s long-term value, the recent market weakness due to the financial sector has helped to keep further pressure on shares over the last two weeks.

Fundamentally, it is hard to find much to pick on. Growth and margins are strong, debt is low, and return on equity metrics are quite attractive. Shares do trade at a premium of 29 times forward earnings but this is not out of line from where shares have traded on the past and arguably on the lower side of historical ranges. If concerns around the financials sector cause further weakness in the markets that drag down shares of XPEL, they could begin flirting with attractive levels given the growth and fundamentals at the company.

Shoals Technologies Group Inc. (SHLS-Q)

Shoals provides Electrical Balance of System (EBOS) solutions for solar projects, which are essentially various fuses, cable assemblies, and connection boxes that are critical components to utility grade solar projects. The product is a bit of a ‘better mousetrap’ compared to alternatives, as its ease of use means that certified electricians are not needed for installation. This saves on labour costs and time and is even more valuable given skilled labour shortages. Finally, compared to the total costs of a solar project, the products provided by Shoals make up a low portion of total project costs, giving them some pricing power (partners unlikely to balk at a 10% increase when the product is an immaterial amount to the total cost) while also helping to save costs on actual installation.

With concerns in the financial sector, solar companies across the board have seen a drawdown due to concerns of a pullback on financing solar projects as financial conditions tighten. Fortunately for Shoals, they work closely with their customers and tend to have visibility into the revenues for the next 12 months, providing a bit more confidence in the level of revenues they should generate in the coming year. While an industry wide slowdown would not be ideal, Shoals is expected to grow revenues by 50% in 2023, giving them plenty of room to weather a short-term industry pullback, that may or may not even occur. Similar to XPEL, while not ‘cheap’ at 31 times forward earnings, shares are trading close to the lower bound of their valuation since the company went public. Further, adjusted for growth, SHLS trades at a PEG ratio (price-earnings-to-growth) of roughly 0.6X.

Gen Digital Inc. (GEN-Q)

Gen Digital is a cyber-security company that owns the Norton, Avast, and AVG brands many are likely familiar with. The company recently completed a combination between these different brands and has come out the other side with a large amount of leverage that looks to be the primary reason around the decline in shares, alongside general market weakness and concerns over an ability to integrate the different brands under one roof. With the large debt load and our preference to avoid companies that have recently closed material acquisitions, it is typically a company that would rank low on our list of investment candidates but the company does hold a unique market position, has 80%+ gross margins and a double-digit growth rate. While a lower valuation looks warranted given the debt load, shares trade at just under 8X forward earnings and pay a dividend that amounts to a yield of 3%.


While times of market turmoil like we are seeing currently can make it difficult to even think about new investment ideas, it is often the time an investor should be increasing the pace at which they turn over rocks, as during these stressful times is when you are more likely to find mispriced companies. Often fear takes over and you have situations of forced sellers, driving prices down. Even more benign, in stressful market environments, investors simply aren’t interested in adding exposure to equities, which on its own can lead to prices drifting lower or mispriced opportunities hanging around for longer than they may typically.

While markets are efficient over longer periods, they can drift too far in either direction in the short-term and even more-so in times of fear. The good ‘deals’ that investors dream of don’t come around when everything looks good, healthy, and stable. They come in times of discomfort, volatility, and uncertainty.

This does not mean an investor should charge headfirst into markets when risks are elevated or that this current set of problems is about to come to a close. It does mean, however, that this is likely the time an investor should at least be turning over rocks, sharpening their pencils and seeking out opportunities so they can be ready for when markets get through the current crisis du jour and make a turn for the better, whenever that may be.

Disclosure: The i2i Long/Short US Equity Fund holds a financial interest in SHLS. Belco Private Capital Inc. is the investment fund manager, portfolio manager and exempt market dealer for the i2i Long/Short US Equity Fund.

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