The Sift No.2

_{Disclaimer: This publication is for informational purposes only and reflects general views that are not tailored to any specific investor. It does not constitute a recommendation to buy or sell any security. The Cedar Grove Capital Management LLC (“CGCM”) may hold positions in securities mentioned and may buy or sell such securities at any time without notice. Views are subject to change and are based on incomplete and preliminary analysis. Investing involves risk, including loss of principal.}

_{Note: We hold no positions in any of the companies listed below.}

NEEDS MORE RESEARCH → A special situation trade that has piqued our interest is one of Real Brokerage Inc’s (REAX) bid to acquire ReMax (RMAX). Both are real estate brokerage houses, and it appears that this merger is more out of necessity rather than out of strength. The industry has been dealt quite a few blows, with less-than-abundant housing transactional volume coupled with an NAR settlement that affected brokerages’ ability to charge higher commission rates. This deal is interesting because it appears, at first glance, that the bid is for $13.80/share, which, at the current price of $11.12, looks like a decent spread. However, that’s not the case. The deal transaction terms are for 5.15 shares of REAX or $13.80 based on not just the closing price of the stock on April 24th, but also in pro-rated terms of between $60 and $80 million. Over the last few weeks, REAX has caught a bid, and thus, RMAX stock has rallied but still sits below the announced takeout price in April. Given that this deal looks a lot like the Compass / Anywhere Real Estate deal last year, which did not receive a second request from the FTC, it doesn’t look like legal risk is present. However, the stock can continue rallying if REAX continues to catch a bid, which could fetch above the $13.80 announced price and well above where it’s trading at today, or could sink from either a) a deterioration of REAX from multiple factors or b) a deal break occurs and RMAX craters back to the $5/share level before the announcement.

NEEDS MORE RESEARCH → BOBS is a consumer discretionary company that sells furniture in the U.S. Think bedroom sets, living room, mattresses, and other home decor. The stock recently IPO’d at $17/share and peaked at $23.50 before bottoming at $9.75/share. It’s not hard to see why the company was sold off after the IPO, considering it went live just a few weeks before Trump started its regime change in Iran, and the market didn’t want to reward any consumer discretionary company during this turmoil. However, despite the general macro environment and the housing industry being soft over the last few years, BOBS has still been able to post positive y/y annual growth during the slump, as well as a hefty ~17% growth in 2025. This is on top of its ability to fund new unit growth (showrooms) with FCF, and with no debt on the balance sheet after the IPO (except for operating leases) and a decent cash balance, we think this one warrants more of an in-depth look.

NEEDS MORE RESEARCH → We’ve been eyeing the bombed-out restaurant industry in search of any potential mispriced assets that are in the process of a turnaround, and one that got flagged to us was actually Rave Pizza. It coincidentally was the stock that our friend, Dylan Marello, over at Marello Capital, pitched at the recent Planet MicroCap Conference just a few weeks ago. You can see his pitch here. As the company name might suggest, it is a pizza concept that operates under a few brands (Pizza Inn and Pie Five). Pizza Inn is more ‘buffet" oriented with a delivery and carryout option, while Pie Five is more of a ‘build-it-yourself’ fast casual concept. The short story here is that Pie Five has been a drag on the company’s growth after having peaked at >100 units nearly a decade ago and is down to the low double-digits (~14) at the moment, while Pizza Inn is the real growth engine. The company is undergoing a turnaround strategy where they’re looking to revamp its unit concept to attract more franchisees, tailor more independence to promotional activities for franchisees, and re-enter markets where the demographic welcomes lower-cost pizza options (think along the lines of a Domino’s or a Little Caesars’). We also like pizza in general, and even more during times of economic stress on households.

Our initial hesitation: While the company trades well below its peers and has posted strong comps over the last few years (above the industry average), it has a liquidity problem. Only ~$90k worth of shares trade a day, so you’re at the mercy of the market to a) build a position or b) the need to exit. Something to keep in mind.

NEEDS MORE RESEARCH → Along the lines of the RMAX and REAX deal, another name-brand brokerage house, Douglas Elliman, has caught our attention. Unlike the other brokerages, DOUG specializes in luxury real estate and opts for a direct commission model instead of an agent-based one. This means that people who work for DOUG can get paid considerably more than at a RMAX or REAX → retention benefit. As we mentioned in the RMAX snippet above, it appears that a lot of the brokerage houses are merging in an effort to survive the downtrend in real estate transactions. What makes DOUG interesting is that it almost appears to be a better asset. The company model is different, caters to wealthy individuals who are less prone to downtrends, and is sitting on a large cash pile (~$96 million → half the current market cap) and has no true “debt.” With the growing trends of consolidation and momentum in the underlying company (aside from Q1), it’s one worth watching, though we acknowledge that housing winter is still very much alive, and rates are not currently helping the situation.

PASS → AIIR was a recent SPAC from Cantor Equity Partners that officially started trading under AIIR in mid-May. The company specializes in providing hookahs via its select brands and partnerships (like with Snoop Dogg) around the world. The company has had some steady growth over the years and was surprisingly profitable on an adjusted EBITDA basis. While the company boasts having a sizable market share in the Shisha Tobacco space, the growth prospects seem pretty lackluster. Even in their investor presentation, they’re only forecasting forward 5-year growth at a mere ~3.6% CAGR. They do have debt on the balance sheet, which recorded a net leverage multiple of ~2.1x → down from 3.6x in 2023. A lot of its ‘pitch’ is predicated on new investment opportunities to bolster its portfolio of brands → categories such as nicotine pouches, vaping, hookah pods, etc. These investments are dragging down adjusted EBITDA, understandably so, but we’re not convinced that AIIR is positioned well enough to argue for an outsized return.

What would change our view: The easiest answer here is if the multiple gets cheap enough. I think many would argue that vaping is still a fast-growing industry, with nicotine patches not far behind it. However, having gone public via a SPAC, still sitting on a pile of debt, and perhaps selling a story more than an actual opportunity, is what concerns us. We’ll have to see how they materialize first as a public company with a few quarters under its belt. We’re not against boring, but boring still needs to meaningfully grow for it to be attractive.

NEEDS MORE RESEARCH → We came across Shelly Group at the Planet MicroCap conference and were actually impressed with the business. They’re an integrated hardware and software company in Europe that is used around the home. Think smart cameras, door locks, sensors, etc., with management solutions for the software side. If you need a clearer comparison, it’s like the IoT market here in the U.S. Given the >40% y/y growth they’ve had since 2021, the demand is clearly there for its products. With its slated investment into new hardware and software categories, and general tailwinds in turning the average home into a ‘smart home’, it’s hard to see that Shelly Group would not be a beneficiary. They pride themselves on their innovation and patented products as they continue to build out their portfolio and penetrate further into the home. The company does have some debt, but sits on a healthy net cash position. While it’s had a great run up in the stock price, it trades at a 30% discount to the peak multiple it commanded in January of this year, while still expecting to grow EBITDA by >60% this year, and >30% over the following two years. Having briefly spoken to Wolfgang Kirsh (co-CEO), it’s a name we’d like to get to know further.

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Until next time,

Paul Cerro | CIO of Cedar Grove Capital Management

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

Fund Website

_{Disclaimer: This publication is for informational purposes only and reflects general views that are not tailored to any specific investor. It does not constitute a recommendation to buy or sell any security. The Cedar Grove Capital Management LLC (“CGCM”) may hold positions in securities mentioned and may buy or sell such securities at any time without notice. Views are subject to change and are based on incomplete and preliminary analysis. Investing involves risk, including loss of principal.}