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Chuck Royce's Firm Closes Out 2018 Buying EverQuote

- By Sydnee Gatewood

Royce & Associates, the firm led by renowned value investor Chuck Royce (Trades, Portfolio), disclosed that it established one new position and trimmed two other holdings on Dec. 31.


The New York-based firm, which specializes in small-cap securities, picks stocks using an active, bottom-up, risk-conscious and fundamental approach. It looks for opportunities among companies that are trading at a discount to enterprise value.

According to GuruFocus real-time picks, a Premium feature, Royce's firm invested in EverQuote Inc. (EVER) and reduced its positions in Westell Technologies Inc. (WSTL) and Ethan Allen Interiors Inc. (ETH).

EverQuote

The firm picked up 536,746 shares of the Massachusetts-based company for an average price of $4.18 per share, dedicating 0.02% of the equity portfolio to the holding.

The online insurance marketplace, which went public in June, has a $110.37 million market cap; its shares were trading around $4.41 on Friday with a price-book ratio of 2.34 and a price-sales ratio of 0.50.

GuruFocus data shows the stock has tumbled roughly 76% since its debut.

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GuruFocus rated EverQuote's financial strength 7 out of 10. In addition to having no long-term debt, the Altman Z-Score of 4.02 indicates the company is fiscally sound. The company's profitability and growth did not fare as well, scoring a 3 out of 10 rating as a result of having negative margins and returns that underperform a majority of competitors.

The guru's firm holds 2.14% of EverQuote's outstanding shares.

Westell Technologies

Royce's firm slashed its position in the Aurora, Illinois-based company by 96.11%, selling 289,087 shares for an average price of $1.89 per share. It now owns 11,712 shares. According to GuruFocus, the firm has lost an estimated 28% on the investment since the first quarter of 2013.

The telecom equipment company has a market cap of $30.15 million; its shares were trading around $1.93 on Friday with a price-book ratio of 0.60 and a price-sales ratio of 0.63.

According to the Peter Lynch chart, the stock is overvalued since it is trading above its fair value.

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Westell's financial strength was rated 8 out of 10 by GuruFocus. Despite having no long-term debt, the Altman Z-Score of -4.18 warns the company is at risk of going bankrupt. The company's profitability and growth scored a 5 out of 10 rating, boosted by operating margin expansion and a high Piotroski F-Score of 7, which means business conditions are healthy. The company also has a business predictability rank of one out of five stars, which GuruFocus says means it typically sees its stock price gain an average of 1.1% per year. As a result of declining revenue per share over the last several years, however, the rank is on watch.

With 6.48% of outstanding shares, Jim Simons (Trades, Portfolio)' Renaissance Technologies is the company's largest guru shareholder. Royce now holds 0.07%.

Ethan Allen Interiors

The portfolio managers sold 382,136 shares of the Danbury, Connecticut-based company for an average price of $17.59 per share, curbing the position by 34.07% to 739,634 shares. GuruFocus estimates the firm has lost 15% on the investment since the first quarter of 2015.

The furniture company has a $481.97 million market cap; its shares were trading around $18.14 on Friday with a price-earnings ratio of 13.17, a price-book ratio of 1.25 and a price-sales ratio of 0.67.

Based on the Peter Lynch chart, the stock appears to be undervalued.

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Supported by ample interest coverage and a high Altman Z-Score of 5.4, which suggests the company is financially healthy, GuruFocus rated Ethan Allen's financial strength 9 out of 10. The company's profitability and growth scored a 6 out of 10 rating. Although the operating margin is in decline, it still outperforms 52% of industry peers. The company also has a moderate Piotroski F-Score of 6, which suggests operations are stable, and a one-star business predictability rank that is on watch.

Of the gurus invested in Ethan Allen, Royce's firm has the largest position with 2.78% of outstanding shares. Simons' firm, Barrow, Hanley, Mewhinney & Strauss, Hotchkis & Wiley, Pioneer Investments (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio) also hold the stock.

Performance

Royce's $14.5 billion portfolio, which is composed of 1,174 stocks as of the third quarter, is largely invested in the industrials and technology sectors.

As of Sept. 30, the firm's five largest holdings are Quaker Chemical Corp. (KWR), Vishay Intertechnology Inc. (VSH), Helios Technologies (SNHY), Ares Management Corp. (ARES) and Hubbell Inc. (HUBB).

According to its fact sheet, the Royce Premier Fund returned 23.85% in 2017, outperforming the Russell 2000's return of 14.65%.

As previously announced, Royce will be the keynote speaker at the 2019 GuruFocus Value Conference in Omaha, Nebraska in May. Get your tickets today!

Disclosure: No positions.

Read more here:

  • Royce Funds 4th Quarter Small-Cap Investment Update
  • Royce Funds Commentary: Royce's Distinctive Approach to Risk Management
  • Royce Funds Commentary: What Do an Aging Cycle and Rising Rates Mean for Small-Caps?


This article first appeared on GuruFocus.