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Chuck Royce's Firm Slashes 3 Positions in May

Small-cap specialist reduces holdings of Circor International, Amber Road and EverQuote

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Jun 07, 2019
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Royce & Associates, the investment firm founded by renowned guru

Chuck Royce (Trades, Portfolio) in 1972, revealed on Thursday it trimmed its holdings of three companies in May.

Specializing in small-cap companies, the New York-based firm picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. It also looks for value opportunities among companies trading at a discount to enterprise value.

According to GuruFocus Real-Time Picks, a Premium feature, the firm reduced its positions in Circor International Inc. (

CIR, Financial), Amber Road Inc. (AMBR, Financial) and EverQuote Inc. (EVER, Financial) on May 31.

Circor International

Royce’s firm reduced its Circor stake by 40.37%, selling 798,437 shares. It now holds 1.18 million shares, which represent approximately 0.25% of the equity portfolio. Shares traded for an average price of $42.26.

According to GuruFocus, the firm has lost an estimated 8.6% on the investment since the third quarter of 2009.

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The Burlington, Massachusetts-based company, which manufactures industrial valves and pumps, has an $898 million market cap and an enterprise value of $1.56 billion; its shares were trading around $45.19 on Friday with a price-book ratio of 1.74 and a price-sales ratio of 0.74.

The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.

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Circor’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. As a result of issuing approximately $656.15 million in new long-term debt over the last three years, the company has poor interest coverage. In addition, the Altman Z-Score of 1.61 warns it is at risk of going bankrupt.

The company is further weakened by a declining operating margin and returns that underperform over half of its competitors. Circor has a moderate Piotroski F-Score of 4, however, which indicates business conditions are stable. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per year.

Of the gurus invested in Circor as of the first quarter, Royce’s firm had the largest stake with approximately 9.95% of outstanding shares.

Mario Gabelli (Trades, Portfolio) and PRIMECAP Management (Trades, Portfolio) are also shareholders.

Amber Road

The firm curbed its Amber Road holding by 79.84%, dumping 1.4 million shares. It now holds 363,809 shares. The stock traded for an average price of $12.98 per share.

GuruFocus estimates Royce has gained 55% on the investment since establishing it in the second quarter of 2014.

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Headquartered in East Rutherford, New Jersey, the software company, which specializes in global trade management solutions, has a market cap of $369.99 million and an enterprise value of $381.13 million; its shares were trading around $13.01 on Friday with a price-book ratio of 12.93 and a price-sales ratio of 4.21.

According to the median price-sales chart, the stock is overvalued since it is trading above its historical average.

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Weighed down by low cash-debt and debt-to-equity ratios, GuruFocus rated Amber Road’s financial strength 4 out of 10. In addition, the low Altman Z-Score of 0.80 warns the company is in danger of bankruptcy.

The company’s profitability and growth scored a 5 out of 10 rating. Despite having declining margins and negative returns that underperform industry peers, Amber Road is strengthened by a moderate Piotroski F-Score of 6.

As of the end of the first quarter, Royce’s firm held 6.35% of Amber Road’s outstanding shares.

Jim Simons (Trades, Portfolio)’ Renaissance Technologies also has a position in the stock.

EverQuote

Royce & Associates trimmed its EverQuote position by 3.12%, selling 19,000 shares. It now holds 590,831 shares. The stock traded for an average price of $11.34.

Since establishing the holding in fourth-quarter 2018, GuruFocus says the firm has gained approximately 32% on the investment.

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The online car insurance marketplace, which is based in Massachusetts, has a $292.7 million market cap and an enterprise value of $254.98 million; its shares were trading around $11.69 on Friday with a price-book ratio of 6.89 and a price-sales ratio of 1.14.

Based on the median price-sales chart, the stock appears to be overvalued.

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Supported by no long-term debt, EverQuote’s financial strength was rated 7 out of 10 by GuruFocus. In addition, the Altman Z-Score of 6.43 suggests the company is in good fiscal standing.

The company’s profitability and growth did not fare as well, scoring a 3 out of 10 rating on negative margins and returns that underperform a majority of competitors.

As of the first quarter, Royce’s firm is the only guru invested in the company, holding 2.39% of outstanding shares.

Portfolio composition and  performance

The $11.83 billion equity portfolio, which is composed of 1,136 stocks, is largely invested in the industrials and technology sectors.

According to the firm’s website, the Royce Premier Fund slightly outperformed its benchmark in 2018 with a return of -10.4%. The Russell 2000 posted a -11% return.

Disclosure: No positions.

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