Here’s Why Brown Capital Management Sold DMC Global (BOOM)
Brown Capital Management, an investment management company, released its “The Brown Capital Management Small Company Strategy” Q3 2022 investor letter. A copy of the same can be downloaded here. The Small Company Composite returned -3.06% in the quarter compared to 0.24% for the Russell 2000 Growth Index. The rise in interest rates and inflation concerns drove equity market volatility in the quarter. In this scenario, despite the strong fundamentals, the strategy underperformed its benchmark index. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Brown Capital Management highlighted stocks like DMC Global Inc. (NASDAQ:BOOM) in its Q3 2022 investor letter. Headquartered in Broomfield, Colorado, DMC Global Inc. (NASDAQ:BOOM) provides technical products for energy, industrial, and infrastructure markets. On December 16, 2022, DMC Global Inc. (NASDAQ:BOOM) stock closed at $16.14 per share. One-month return of DMC Global Inc. (NASDAQ:BOOM) was -12.09%, and its shares lost 55.59% of their value over the last 52 weeks. DMC Global Inc. (NASDAQ:BOOM) has a market capitalization of $315.208 million.
Brown Capital Management made the following comment about DMC Global Inc. (NASDAQ:BOOM) in its Q3 2022 investor letter:
"DMC Global Inc. (NASDAQ:BOOM) manufactures industrial niche products for the energy, industrial and transportation markets, and operates in two segments, DynaEnergetics and Nobel Clad. DynaEnergetics manufactures explosive perforating systems used to create flow paths for petroleum during well completion within the drilling process for the oil and gas industry. Also, the systems’ detonation requires an electronic code, protecting it from interference from currents, static electricity and other causes of unintentional detonation. This improves efficiency and safety for the well completion process. DMC’s Nobel Clad segment makes explosion-welded (EW) specialty-metal products used where corrosive and temperature-resistant qualities are critical in energy, chemicals, shipbuilding and other industrial applications. The Nobel Clad’s EW products address mission-critical areas where traditional welding products do not suffice.
We purchased DMC back in September 2007 for the company’s EW business. During our holding period, the company expanded into DynaEnergetics in pursuit of other growth opportunities. Although each segment has produced solid growth over time, they both sell into cyclical growth industries. Also, the company has significant market share in each of its end markets, suggesting the runway for growth could be limited going forward. DMC would need to make significant acquisitions to add a possible third business segment to enhance growth.
On Dec. 17, 2021, DMC Global agreed to acquire Arcadia, Inc., a privately held supplier of architectural products and premium windows and doors for the commercial and high-end residential markets. DMC management thinks the companies enjoy similarities as innovative, asset-light, service-model businesses. We do not think the acquisition provides exceptional value. As a result, we decided to sell DMC."
DMC Global Inc. (NASDAQ:BOOM) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 8 hedge fund portfolios held DMC Global Inc. (NASDAQ:BOOM) at the end of the second quarter, which was 5 in the previous quarter. In addition, please check out our hedge fund investor letters Q3 2022 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.
