Writeup #3 - Japanese software company
This post reflects my personal opinions and research. It is not investment advice. Whiteout Capital is a publication of Eudemonia 0x1 LLC. Please read the full disclaimer: whiteoutcapital.com/legal-disclaimer.
I own shares of the company discussed in this post.
My fellow investors,
In January of this year I started exploring the Tokyo Stock Exchange. I did not begin with a specific industry or sector I was focusing on, but it quickly became apparent that there were many interesting software and IT companies, so I narrowed my search to just those industries.
I came across several promising companies, but after about two months of searching, the company I’ve profiled below stood out more than the rest. Its flagship product is a cash cow that enjoys an essential monopoly with a strong moat and continues to grow top and bottom line growth in the mid-to-high single digits. What’s more interesting, and doesn’t show up in a screen, is that they have a new business segment that’s just under half the size of the flagship product and is growing much quicker. Combine that with value-accretive capital allocation and what I believe is a compelling valuation, and I think the stock offers high upside with a good margin of safety supported by the strong core business and cheap valuation.
Every once in a while I come across an opportunity that checks all the boxes, and this Japanese software company fits the bill:
✅ Core business growing top and bottom line with high barriers to entry
✅ Core business or sub segment with a long growth runway, industry tailwinds, and proven product-market-fit
✅ Founder-led
✅ Profitable
✅ Cheap or fair valuation (<4x sales, <20x earnings, and <7x FCF; all below comps)
✅ Large net cash position with little to no debt
✅ Pays a decent dividend
✅ Buying back shares
✅ No writeups (in English, at least) that I could find
This is the most excited I’ve been since I found California Nanotechnologies in 2023. It took me over two months to build my position once I started buying in earnest, but I’ve still been sitting on this writeup for a while, waiting to publish. Back in March, after I’d started building an early position, I contacted a friend to see what his thoughts were on the company. It turned out that he was also buying shares of the same company. As a courtesy to him, I waited to publish this article so he could have time to purchase shares. I’m sorry for the delay and slight run up in valuation, but I still think the thesis holds and that the valuation is cheap even if it’s slightly more expensive than it was a few months ago.
That’s enough build up, let’s pull back the curtain and dive into this Japanese software company.