2 Micro-caps with Conglomerate-like Properties

It is arguably rare to come across diversified micro-cap companies with multiple business segments, so we thought it would be worthwhile profiling 2 such companies in the Zacks microcap universe with recent noteworthy activity.

Diversifying can sometimes be a double-edged sword, resulting in what is sarcastically known as “diworsification” in the investing world. Chasing new growth vectors is often easier said than done. 

Expansion into high growth foreign markets like Brazil or India comes to mind. But lack of sufficient expertise in these markets can sometimes prove too daunting. I have seen multiple instances of write-offs in these geographies.

Sometimes the company may diversify into completely new verticals, which can require substantial new cap ex. It is not uncommon to see such experimentation ultimately abandoned down the road through a divestiture with the company opting to refocus on “core” assets and competencies.

Or the company may try to add another spoke to its wheel by staying within its vertical and hoping it can add new services to existing customers through successful cross-selling. Cost synergies by leveraging the existing cost and sales infrastructures are expected.

In a more general sense, companies may be looking at diversification as a hedging mechanism to smooth out more cyclical and volatile parts of their business.

Let’s start with Air T, Inc. (AIRT), a holding company operating a diversified portfolio of businesses and financial assets across the aviation sector. With a market cap of $78 m, this microcap has a lot going on and looks more like a large cap conglomerate with a portfolio of 20 companies. 

Image Source: Zacks Investment Research

The company concedes that it has many moving parts, or complexity, that often turns off investors. And some of the more capital-intensive products like plane deicers, can be lumpy. And the recurring trading of used aircraft can result in gain/loss swings to EPS.

Air T, Inc. (AIRT) operates via five reportable segments — Overnight Air Cargo ($123.7 million, 37.8% of FY26 revenues, down 0.3%), Ground Support Equipment ($47.2 million, 14.4%, up 21.2%), Commercial Aircraft, Engines and Parts ($86.9 million, 26.6%, down 26.5%), Digital Solutions ($9.1 million, 2.8%, up 24.9%) and Regional Airline ($55.3 million, 16.9%), following the Regional Express Holdings Pty Ltd. (Rex) buyout.

The recent acquisition of financially troubled Australian regional carrier Rex (Regional Express) via debt issuance is noteworthy. Some famous investors shy away from airline investments, but it appears the company deemed the distressed assets to be attractively priced.

A successful overhaul and rejuvenation of the airline could be a potential catalyst moving forward, though we remain on the sidelines for evidence of execution. 

In my opinion, airplanes and their engines are generally good assets. So, keep in mind the tangible book value of $20.07/share should the stock pull in.

IDT Corporation (IDT) is another, though larger microcap at a $1.7 B market cap, with conglomerate-like properties. IDT Corporation (IDT) is a provider of fintech and communications solutions serving under-served consumer and B2B markets. It operates via a set of synergistic platforms spanning point-of-sale (POS) technology, money remittance, cloud communications, prepaid digital products, international voice and SMS.

Image Source: Zacks Investment Research

Its Traditional Communications business, which represents about 70% of revenue, has been flagging but still provides meaningful EBITDA. This segment includes prepaid mobile, gift cards, long-distance voice, and wholesale international voice/SMS.

Growth is coming from the other segments like POS (point of sale), remittances, and enterprise VOIP. Importantly, the POS business has a recurring revenue component based on the monthly transactions from hardware terminals. And these other segments tend to carry higher margins.

Adj. EBITDA grew 13% YOY in the last quarter and the balance sheet remains strong with $251.4 m in cash and cash equivalents and no debt. Zacks currently has an Outperform rating on IDT.

Both companies appear to be sticking to their knitting by staying within verticals they know. At this stage, IDT appears to have found a workable formula for efficient segment utilization while AIRT is worth monitoring.

 

7 Best Stocks for the Next 30 Days

Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."

Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.9% per year. So be sure to give these hand picked 7 your immediate attention. 

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research