The Best Ideas I Found in Q1 2025 Investor Letters (Part II)
From the letters of Laughing Water Capital (Matt Sweeney) and Cedar Creek Partners (Eriksen Capital Management)
I’m back with a second part of the letters that I like to read and write-down the most interesting parts.
If you missed the Part I of the Q1 2025 Letters, go and read it. Quite a few interesting ideas!
TL;DR
Companies mentioned in the letters:
Xponential Fitness (XPOF)
Avid Bioserves (CDMO)
Lifecore Biomedical Inc (LFCR)
NextNav Inc. (NN)
Vistry Group PLC (VTY.L)
PAR Technology Corp (PAR)
Cantaloupe (CTLP)
Hilton Grand Vacations (HGV)
Thryv Inc (THRY)
Evercel (EVRC)
Propel Media (PROM)
First IC (FIEB)
Solitron Devices (SODI)
PharmChem (PCHM)
Citizens Bancshares (CZBS)
ENDI Corp (ENDI)
Skyline Bankshares (SLBK)
Q1 2025 Laughing Water Capital Letter Summary
In his Q1 2025 letter to investors, Matthew Sweeney, managing partner of Laughing Water Capital (LWC), reflects on a quarter in which the fund declined 13%, underperforming broader indices. While acknowledging the frustration that can come with this kind of short-term volatility, Sweeney stresses the importance of focusing on long-term fundamentals over daily market noise.
The losses were primarily driven by one of the fund’s largest positions, which declined sharply in price despite ongoing positive developments. Sweeney argues that this kind of mark-to-market volatility is ultimately inconsequential when the underlying business continues to make progress
"We invest based on competitive advantages, overcoming temporary problems, management team skill, and the ability to increase earnings power over the intermediate and longer term. Regardless of what else is happening in the world, if we can find businesses that are able to meaningfully increase their per share earnings power between today and a few years from now, I expect we will be rewarded as long as we don’t overpay at the outset.
"It can be difficult to stay focused on this idea when the mainstream media seems to giddily call for the next recession or bear market every chance they get. The situation is not made easier when there is a heaping side of politics adding to the fray.
"Many of our most successful investments have worked as well as they have because the key driver of these investments was not competitive advantage, or product fit, or growth, or anything like that. Rather, many of our best investments have been in companies where the path to success went directly through properly incentivized people simply doing what is in their own best interest. For example, if a company has two divisions, and one is earning one dollar per share, and the other is losing fifty cents per share, management can double earnings (gross of external costs) by simply flipping a switch and shutting down the money losing operation.
On Trump’s Administration and Market Turmoil
He comments extensively on the return of the Trump administration, whose unpredictable tariff policies have created market noise and confusion. But rather than shifting strategy, he believes Trump’s political instincts will likely prevent extreme economic disruptions before the midterm elections.
Additionally, while the outcome of the current tariff uncertainty is unknowable, there are a few things I think I do know. Tariffs will not change the move toward biologic drugs. Tariffs will not prevent small businesses from moving to the cloud. Tariffs will not slow the demand for wireless spectrum. They will not keep quick serve restaurants from upgrading their technology, and they will not keep people from buying snacks and drinks from vending machines either.
Two Investment Mistakes
Xponential Fitness: Originally purchased when the stock was under pressure due to a short-seller report and regulatory scrutiny, the investment thesis was that the company’s premier brand, Club Pilates, was worth more than the entire enterprise value of Xponential, giving zero value to the rest of its fitness concepts. As the regulatory issues began to clear and an experienced management team was installed, Matt increased the position significantly, making it one of the fund’s largest. Unfortunately, shortly thereafter the company reported disappointing store openings and issued weak guidance, causing the stock to fall by half. While Club Pilates continues to perform well and the company may soon divest some weaker brands, Sweeney admits that he made a mistake by scaling up the position based on regulatory progress without sufficient confirmation of operational improvements.
Avid Bioservices (CDMO): This was a long-held position that had shown promise, with the company investing heavily in capacity expansion. The investment thesis was that once this new capacity came online, it would result in significant operating leverage and profitability. However, the company was recently acquired by private equity at what Sweeney considers a low-ball price of $12.50/share. He points to the acquisition proxy, which projects a 47% increase in revenue and a doubling of EBITDA by fiscal 2026, with another doubling by 2029. In his view, these projections confirm the original thesis and suggest the company was sold at the bottom of the cycle. Compounding the disappointment is the fact that management and the board had little skin in the game, and activists who once protected shareholder interests had long since exited. The deal also triggers short-term tax consequences for shareholders, turning what should have been a long-term home run into a bittersweet outcome.
Comments on Holdings
Lifecore Biomedical (LFCR) is in turnaround mode under new leadership, with improvements in its balance sheet, sales force, and customer pipeline. As capacity utilization rises, the business is poised for strong operating leverage and FCF. A recent filing suggests an 80% chance the company could be sold within three years—potentially at a valuation significantly above current prices.
NextNav (NN), the fund’s largest holding and biggest short-term detractor, continues to build momentum behind the scenes. While forced selling and messy GAAP accounting have pressured the stock, the company’s GPS technology is gaining attention at the FCC, which has formally opened a rulemaking process aligned with NextNav’s goals. If progress continues, Matt believes the stock could multiply in value.
Vistry Group (VTY.L) has been weighed down by accounting issues and delays in UK housing funds, but these problems are temporary. With the UK government committing billions to affordable housing and insiders buying shares, Sweeney remains confident in the company’s transition to an asset-light model and sees attractive upside from current levels.
PAR Technology (PAR) continues to perform well, with recurring revenue and customer locations more than doubling in 2024. Though growth will normalize to around 20%, the company is scaling efficiently, expanding into new markets, and leveraging M&A opportunities. Strong operating leverage is now coming through in the numbers.
Cantaloupe (CTLP) has seen its share price fall despite improving fundamentals. The company is now FCF positive and, according to Reuters, exploring a potential sale.
Hilton Grand Vacations (HGV) trades at just 4–5x FCFand is aggressively buying back stock. Management recently expanded its repurchase program by 50%, and Matt expects the company could retire half its shares within three years. The business has historically shown resilience in recessions.
Thryv Inc. (THRY) delivered strong 2024 results, growing SaaS revenue 25% and transitioning fully away from its Yellow Pages legacy. The market has yet to reward these improvements, but Sweeney sees long-term potential as younger business owners embrace software. The stock remains cheap relative to peers, and insider buying adds conviction.
What I believe is most important for us is that for the most part, our businesses are recession resilient, and have strong tailwinds improving their individual near term prospects, as well as strong tailwinds improving their industry prospects. The businesses themselves are well suited to navigate the unknown future macro environment, and with time should be able to drive their normalized earnings power higher.
Q1 2025 Cedar Creek Partners Letter Summary
If you like microcaps, OTC opportunities and activist situations, you should follow Tim Eriksen of Cedar Creek Partners.
(BTW, I just launched a ebook to learn how to invest in microcaps. So, if you feel lucky, grab your copy HERE for just $9 bucks).
However, a word of caution: Tim invests mostly in the “Expert market” stocks part of the OTC market where retail investors are largely prohibited from buying.
Over its 19-year history, the fund has compounded at an impressive 14.3% annually, more than doubling the total return of benchmarks like the S&P 500 and NASDAQ over the same period.
Comments on Holdings
Western Capital Resources (WCRS) rose sharply this quarter after announcing a tender offer at $15/share—well above its prior market price. The company earned $1.52/share in 2024 on a cash basis and holds nearly $6/share in net cash. Although earnings were impacted by the consolidation of a recent acquisition, management has relocated operations to improve efficiency. Cedar Creek sees value and continued upside in this well-capitalized, shareholder-friendly company.
Evercel (EVRC) remains a small position with binary upside. The fund increased its stake based on growing confidence that shareholders still retain rights to proceeds from Evercel’s past investment in ZAGG, the screen protector maker. If correct, and if ZAGG retains even part of its original $200 million value, the upside for Evercel could be significant—possibly 4x current prices.
Propel Media (PROM), an illiquid "expert market" holding, was a top performer. Although the FTC blocked a lucrative 2022 buyout offer, Propel has started paying growing quarterly dividends, now totaling 33% of Cedar Creek’s cost basis. Using lender data, the fund estimates Propel’s revenue rose 80% year-over-year. With no public financials, this is one of the fund’s most speculative yet potentially undervalued bets.
First IC (FIEB) surged following its announced merger with MetroCity Bankshares. The deal values shares at approximately $22.58 each, a massive jump from $9.30 earlier in the year. First IC paid a $1 dividend during the quarter and remains marked at a discount to deal value. Cedar Creek expects the merger to close in Q4 2025 and attributes about half of the fund’s quarterly gains to this position.
Solitron Devices (SODI), where the fund manager is CEO, experienced record defense bookings, including orders for HIMARS and AMRAAM missile components. Bookings hit $20.8 million for the year, up from $12.8 million, while backlog now stands at $18.1 million. Despite these milestones, the stock declined modestly during the quarter, offering what the manager sees as a disconnect between fundamentals and price.
PharmChem (PCHM), in which Cedar Creek holds a 33% stake and board chairmanship, announced the exploration of strategic alternatives. The drug detection patch maker remains profitable and debt-free, with solid pre-tax earnings and $0.35/share in cash. Options on the table include a sale, merger, or special dividend, offering potential catalysts in 2025.
Citizens Bancshares (CZBS) remains an under-the-radar bank with exceptional capital levels due to ECIP funding. Despite minimal price movement this quarter, the bank earned ~$7.50/share annualized and trades at just 7x earnings. Management has been buying back shares and returning capital, and the fund expects either an acquisition or more aggressive growth soon.
ENDI Corp (ENDI), which owns the fast-growing asset manager CrossingBridge Advisors, continues to impress. Assets under management grew 10% in Q1 to $3.8 billion, and cash earnings are running at $1.40/share. Adjusted for cash, the stock trades at just 7x earnings. A recent deal valued CrossingBridge at $100 million, supporting Cedar Creek’s view that ENDI’s fair value lies closer to $19–$23/share. (I’ve talked about the company in the Part I, as it happens it’s also a holding of Steven Kiel of Arquitos Capital).
Skyline Bankshares (SLBK) is the fund’s newest addition. Though earnings fell in 2024 due to merger-related expenses, adjusted figures suggest the bank could be earning $2.45/share going forward. The fund acquired shares at $12.50—just over 5x earnings—believing fair value is near $25/share. Skyline also offers a 4% dividend yield, making it a compelling long-term bank investment.