Due diligence that goes above and beyond can often give you an edge that can yield large returns in the microcap space. Most astute investors read quarterly and annual financial statements, but I find very few go beneath this first layer of due diligence. In a four part series Sean, Neil, Jason, and I will give you a few recent examples of in-depth due diligence, and how it ultimately helped in making an investment decision. The company examples in each part are meant to help illustrate the DD and not meant to be stock recommendations. In Part 1, Sean Marconi talked about his due diligence into XPEL Technologies (XPLT). In Part 2, Neil Cataldi talked about his due diligence into Parametric Sound (PAMT), now I bring you Part 3….
Part 3: Innovative Food Holdings (IVFH)
by Ian Cassel
Innovative Food Holdings (IVFH) is a profitable and fast growing provider of direct from the source specialty foods. IVFH has had 48 consecutive months of year/year growth. The company has many irons in the fire, now more than ever, and has visibility on multiple growth drivers on top of healthy core business trends. The company is also one of the only valid e-grocer microcaps, playing off of the Amazon.com’s (AMZN) amazonfresh buzz that is just now starting.
I first found out about IVFH when Sam Klepfish CEO reached out to me over a year ago. I had quickly looked at the company and really liked the business but was hesitant due to weaknesses I saw in the capital structure. Sam understood this, and said they were working to address my concerns. He told me to just be aware of the company and follow their progress. I continued to talk to Sam over the next several months and found him to be very honest and non-promotional.
A few months later I decided to do a deeper dive into IVFH with the help of Neil Cataldi and Jason Revland. We spoke with Sam several times to find out as much as we could about the history of the company and the business itself. We also spoke with President, Justin Weirnasz, to further drill down on the business fundamentals and strategy. We also spoke to the founder of a company that IVFH acquired last year to get a feel for his mindset for the company. It’s important to talk to several C-Level executives inside a company to make sure everyone’s thought process-strategy are aligned. It’s amazing how many times I’ve spoken to multiple people inside other companies where you could sense the tension around strategy, which is a bad sign.
Next, we wanted to try the product(s) and experience the sales process and customer service. Innovative Food’s uses a Chef Advisor customer service-sales force so everyone is a certified chef. We ordered steak, crab, and several other direct from the source products, and also spoke to a Chef Advisor on what accompaniments to order and how to prepare the food. We were very impressed and very full after this due diligence
The final piece of due diligence was visiting the company in Bonita Springs, FL. I can’t over emphasize how important company visits have been for me. Seeing a company’s HQ and having face-to-face meetings with the management is crucial. The ability to see how a company spends money, reading body language, and actually seeing how everyone communicates with one another is very important.
In the end, this exhaustive due diligence process which spanned a few months was crucial in gaining a comfort level with the management team and the value proposition in the company’s shares. I came away very impressed with the company, so much so I bought 5% of the company in the open market.
Further due diligence on Innovative Food Holdings and more than 170 other microcaps can be found in our MicroCapClub members forum. Stay tuned for the final part of The Power of Due Diligence Series.
Disclosure: Ian Cassel is LONG IVFH
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