Small Cap Portfolio: 2 New Buys - March 27, 2024

Continuing to build the Small Cap Portfolio

I started my small-cap portfolio in February. I am still building the first positions. Before today’s buys, the portfolio had 3 positions. As a reminder, the first stock bought was sold following a takeover bid for the company (it was Altium, an Australian software company).

My portfolio update is just here for the visibility on the whole portfolio.

My small cap investment method

I won’t buy small cap stocks the same way I buy big caps. They are more volatile, unpredictable and less followed by analysts and investors.

Therefore, I will follow these rules:

• My positions will be very small. This will allow me to

  • Limit the risk for each stock

  • Easily reinforce if the stock price falls - and my investment thesis remains the same

  • To get my foot in the door and then reinforce or exit

• I won’t focus too much on the price even if, of course, I don’t want to unreasonably overpay

• Of course, I continue to keep my investment philosophy: great quality companies that will be able to thrive over the long term.

And now, it is time to discover the companies and why I bought them.

First new stock

The first stocks is QT Group a Finnish software company providing a solution for UI (User Interface) and application development. Its product offering addresses each step of the product development process, from design and development to testing and deployment.

My position: 5 shares (around 400€)

Main metrics

Market cap $2.0B (all metrics will be in USD)

Revenue 24 $238M

Revenue future growth 21.5% in 2024 / 22.7% in 2025

Net profit margin 20.9%

5y average ROE / ROIC: 34.6% / 26.7%

PE24 41.1x / PE25 30.9x

Dividend -% / Payout ratio -%

Cash $60M (0.7x EBITDA)

Dilution: 1.3%/year

Why invest in this company?

• Strong brand in a growing market. A community is building around it

• Great profitability

• Revenue diversification (products, geography)

• Recurring revenue and great visibility

• A high expected growth, around 20% a year for the next years

A full deep dive will be published this saturday to understand the business model and its strength.

My fair price estimation is around 69€, so roughly the current price. There is a moving average around 62€ that could be a support but too close to add to the position. 38€ - 41€ has been a bottom twice, this could be a reloading zone.