2 Small Caps: Do You Bet on the Horse or the Jockey?

Core Insights - The ongoing debate in the investment community revolves around whether to focus on the industry (the horse) or the management team (the jockey) of a company [1][2]. Company Analysis: Kingsway Financial Services (KFS) - Kingsway Financial Services operates through two segments: Extended Warranty and Kingsway Search Xcelerator (KSX) [4]. - The Extended Warranty segment generated $68.2 million in service fee and commission revenues in 2023, reflecting a 7.8$35 million in revenue in 2023, marking an 81.9% increase from 2022 [5]. - The KSX segment is expected to grow as it is based on the "search fund" model, which has shown superior returns from 1984-2021 according to a Stanford Business School study [5]. - Kingsway emphasizes hiring CEOs from top MBA programs and those with proven leadership skills, including military experience [6]. - The stock is trading at 2.1X trailing 12-month EV/Sales TTM, compared to 2.3X for the Zacks sub-industry and 1.2X for the Zacks sector [8]. Company Analysis: TSS Inc. (TSSI) - TSS Inc. operates in the growing data center industry, benefiting from the demand for AI-enabled infrastructure [9]. - The company provides IT solutions, including rack and systems integration, and has seen significant growth due to the surge in demand for AI [10]. - TSS's net income increased by 345% year-over-year to $1.4 million, driven by higher profitability in core businesses [11]. - Adjusted EBITDA rose by 62$2 million, indicating improved overall profitability despite revenue declines in some segments [11]. - The stock is currently trading at 1.80X trailing 12-month EV/Sales TTM, compared to 2.10X for the Zacks sub-industry [12].