NFLXNetflixBullishNetflixSPGIS&P GlobalBullishS&P GlobalAMDNeutralAMZNAmazonNeutralAmazon

3d ago

October 2026 Portfolio Update

Mechanically derated quality compounders like S&P Global are attractive buys amid AI-chasing selloff

NeutralASMLCVXChevronChevronNVDANVIDIANVIDIA

1w ago

Hindsight Capital

No paywall on this one. It’s a fun thought experiment :) It’s not every day someone does something that makes us go, "We should have done that." Mostly Borrowed Ideas did it with this fun little game called Hindsight Capital. The game is simple - You are presented with a real historical scenario of a company, and you have access to the financials as they were at the time. Each company is in crisis, and you decide whether to invest or pass, and how much of your starting $1M portfolio you will invest in each. The company names are anonymized for obvious reasons. Play the game and then come back here for the findings (do not scroll down before!) : Play the Game For those curious, we ended up with more than $10M+ only because 3 of those companies were already in our coverage/radar, and we could identify them through the crisis and financials even though they were anonymized. If you know that the company made it, you can go all in each time, so we cheated a little :) But playing the game gives us real insight into the companies you should avoid and the ones you should double down on. Let’s take a look at five of the most interesting setups from the game. Company 1: Meridian Aero (in 2016) The company had debt concerns in 2016, with net debt at 5.5x EBITDA. Bull Case About 80% of sales from sole-source parts, which gives it pricing power. A large aftermarket business brings steady, high-margin revenue. A proven acquisition machine that delivers private-equity-style returns. Bear Case High leverage, plus special dividends funded with debt. Growth depends on price increases, and critics compared it to Valeant, a company that collapsed the previous year due to a pricing scandal . Political and Pentagon scrutiny of what it charges on defense contracts. If you had invested in the company in 2016, a year later you would be down 35% as the political pressure just ratcheted up and short seller Citron called TransDigm "the Valeant of aerospace." Final result? The company was TransDigm Group. While debt concerns were real, what bears missed was that the company was the sole supplier of some parts on every major plane (Boeing’s 737, 777, and 787; Airbus’s A320 and A350; and military aircraft like the F-16, F-35, C-130, Black Hawk, and Apache). 80% of their revenue was from parts where they were the only game in town. This meant that an airline with a grounded plane had nowhere else to go to get a new part. Ultimately, Congress forced a $16M refund for overcharging the military, but the rest of their business went on as usual. Monopolies have both strong staying and pricing power. We have a similar thesis in play now for Innovative Aerosystems ($IA) Company 2: Sentinel Group (in 2007) This one’s a much smaller company right on the edge of the Global Financial Crisis. (I know, I know, the hindsight issue, but rumors of an impending crash were already popular in 2007). By 2008, the crisis was in full swing, and investors were avoiding small industrial companies. Bull Case They owned 40+ small businesses across safety, measurement, and environmental niches. It was asset-light, with about 18% operating margins and strong cash generation. It had raised its dividend 5% or more for nearly 30 straight years. Bear Case It was a conglomerate of tiny businesses, and its growth was bought, not built. Investors were dumping every industrial stock, and orders were slowing. 40+ small businesses meant 40+ things that could go wrong in a recession. Would you have invested? If yes, 10 years later you would have 10x the S&P 500's performance. The company was Halma, a U.K. based equipment manufacturer specializing in critical safety equipment (Fire detectors, elevator safety sensors, gas detectors, etc.). This meant Halma's products weren't optional purchases, and most of its building-safety products went into existing buildings, not new construction. Through the worst of the crisis, in the year to March 2009, revenue hit a record £456 million (helped by a weak pound), and Halma raised its dividend 5% for the 30th straight year. Companies in a regulated industry with a strong financial position can survive the worst of recessions. Company 3: LandCo (in 2019) This one’s my personal favorite, and long-time RC readers will immediately identify the company. LandCo traded at a rich valuation: a $3.5B market cap on $300M revenue. But their pre-tax margin is 95% as their business model is as simple as it gets — they rent their land to oil and gas producers and then take a small cut from the oil produced. Now you know what happened in 2020. COVID hit, and the stock dropped by 70% as oil markets collapsed. By now, you should know the company. It was Texas Pacific Land Corp, which has 900,000 acres of land in Texas. Investing at the bottom of the COVID crisis meant the stock exploded once the crisis was over. It also shows how TPL is a Lindy business. The stock basically went nowhere for 35 years after its IPO (from 1985 to 2010), as the company’s main source of revenue was selling small parcels of land and royalties from leasing land to oil and gas companies. Everything changed around 2010 when oil and gas operators developed an advanced drilling technique that enabled them to drill sideways instead of just drilling down. By pumping water and sand through these long horizontal wells, they could crack the rock open and release far more oil than before, which made it profitable to drill on TPL’s land. TPL’s revenue exploded. From only $2.5M in oil and gas royalties in 1995, it grew to $373M by 2024. TPL also diversified its revenue stream by selling & recycling water to oil and gas companies, as the new technique was water-intensive. This is precisely why owning a perpetual asset is beneficial. TPL had to wait almost 90 years after the first well was drilled for the technology to develop enough to make drilling on their land economical. But once it did, the returns were incredible. TPL has now generated a 100x return over the last 15 years. (That’s a 4x return of Apple!) Buy land, they’re not making it anymore . - Mark Twain Company 4: Andes Market (in 2018) Andes Market had a tough time in 2018, with the stock dropping 25% while the market was mostly flat. The main concern was that 1/3 of their revenue came from a country whose currency was in free fall, the company was unprofitable, and one of the world’s biggest companies entered as a competitor. By the end of the year, the company had lost almost half its market cap as the currency collapse deepened and recession set in. What would you do? Personally, this would have been a pass from our side. There is this famous quote that goes, “The only function of economic forecasting is to make astrology look respectable.” There is no point trying to figure out when or if a South American country can become stable again. Add the business risk (competition from Amazon) , and you know it makes no sense from a risk-reward perspective. But for those who held, the stock rewarded richly. The company was Mercado Libre, and the country in crisis was Argentina. Ultimately, Argentina’s economy didn’t recover, but MELI’s business did well anyway. Partly because Argentines used Mercado Pago to protect their savings from inflation, the chaos helped the fintech business. They executed so well that the business 5x’ed in 3 years. Mercado Libre Net Revenue Company 5: PayShield (in 2019) The last company we look at from the game is PayShield. It’s a fast growing payment processor that’s replacing traditional banks and had a market cap of €17B in 2019. Bull Case One of the fastest growing European companies with 35% YoY revenue growth and EBITDA margin near 30%. Just replaced Commerzbank and German regulators were stating that the fraud angle was just a short attack. Finally, the fraud allegations covered only €7M of revenue, a rounding error for the business. Bear Case The FT reported that the firm’s own law firm had found evidence of forgery and upper management had known since May 2018. Growth was powered by acquisitions (18+ over the previous two years) and not organic. A lot of the profit came from Asian units where outside partners could not inspect the records clearly. Would you have invested in the company? If yes, you would have lost your entire investment in the next two years. The company was Wirecard, one of the biggest financial scandals of the decade. Most of the earnings the company reported came from outside partners who were operating in markets where Wirecard did not have a license. But in reality, these transactions were made up and did not exist. The nearly $2B cash the company said sat in its Philippines bank also did not exist. Luckin Coffee, the last company in the game also had a similar trend. After a short-seller published a report stating that the management was inflating per store sales, the stock crashed. But in this case, the company made a comeback because they were transparent about the investigation. The company's own investigator found that the COO and several employees had fabricated $300M+ in sales. The CEO, the COO and the chairman were all gone by mid-2020. Luckin Coffee is now trading nearly at what it was trading at 2020 before the expose. Why do companies fall? External Factors Stock market crash Economic recession/slowdown Govt regulations Global events For example, take a look at what happened during the 2020 COVID-19 crash: Both Exxon and Chevron declined by more than 50% as lockdowns crushed oil demand. Same with TPL as we just saw. Boeing was down 70% as the pandemic halted new orders, just when the company was already bleeding cash due to the 737 MAX issues. The same thing occurred to the Banking sector during the 2008 global financial crisis, and as recently as 2022, when most tech stocks lost half their value due to rising inflation and interest rates. In our view, external factors are an easier bet to double down on, especially when the company has a strong moat and an excellent financial situation. A lot of the competition will die out during the crisis (as we saw during the GFC and the COVID crisis), and whoever is left standing can make a killing when the sector recovers. Think about the companies we could have invested in the last few years just by betting on the macro turning: Tech stocks in the 2022 crash (Meta, Netflix) GPU stocks in both 2018 and 2022 Crypto crash (AMD, Nvidia) ASML during the 2025 memory glut. Oil companies, airlines, equipment manufacturers in 2020 (Rolls Royce, TPL, United Airlines, etc.) Internal Factors On the other hand, a host of internal issues can also cause companies to have severe drawdowns. Weak product Capital misallocation Poor management Fraud It’s the internal issues that should give you pause about buying the dip. Unless you are an exceptional company like Google, it’s a long and hard road to make a comeback: Lululemon is still struggling from its weak product line Kraft Heinz & Walgreens are typical examples of poor capital allocation. Nike’s direct-to-consumer pivot and moving away from their core audience with a new marketing strategy. Finally we have many examples of fraud (Enron, WorldCom, Nikola, etc.) . As Buffett put it so eloquently, you can’t make a good deal with a bad person. Stock picking is already hard. No point in making it harder by dealing with companies where the management is shady and not forthcoming or there are rumors of fraud. The game makes the case for rebound investing better than any argument we could write. There’s always a sector of companies that the market has fallen out of love with and another where the money is pouring in. With AI, this will become more pronounced. Millions of investors are asking the same tools the same questions and they are getting served the same answers. The consensus trade is getting crowded and the case for doing your own research only gets stronger from here. While investors flock to one part of the market, high-quality companies are being ignored. Some of the best compounders we know are at their lowest multiples in years. We will continue to focus here. The crowd overpays for what it loves and ignores the good businesses on sale. But the market eventually catches on. Have a great weekend. We’ll see you Monday. Subscribe now That’s it for today. If you enjoyed this, please “ ♡ Like” this piece and share it with a friend. Share Rebound Capital’s work is provided for informational purposes only, is intended solely for readers in the United States, and should not be construed as legal, business, investment, or tax advice. You should always do your own research. Any reference to ‘we’ in the article refers to the RC team.

NeutralAMATApplied Materials, Inc.Applied Materials, Inc.NVDANVIDIANVIDIA

3w ago

Industry Deep Dive: Semiconductor Wafer Fab Equipment

In this article, we share an industry primer on the machines that enable the creation of semiconductor wafers ( the silicon on which GPU/CPU chips are ‘printed’ ). The companies that sell these machines are few ( ~5 major ones ) in number and underpin the entire AI industry. This enables them to generate superior returns on capital. Roughly $150 billion will be spent on wafer fabrication equipment in calendar 2026, according to our estimates, and three-quarters of it will pass through these companies. We cover how a chip is made, where each dollar of equipment spending goes, and who collects it. We then value the four listed names we follow. We set out the levels at which we would be interested in these stocks. Though this industry is cyclical, spending on wafer fab equipment/machines has grown secularly over the last 30 years. With AI, this growth has exploded. Unlike memory, these companies are not at risk of commoditization with one another due to the greater complexity of the wafer fabrication process. The real competitive threat comes from China. Chinese toolmakers are taking share at mature nodes, which is one reason our base cases assume WFE companies will lose share there. But as the leading edge is growing so quickly, the net effect will be a gain in share. Welcome to Rebound Capital. If you are new here, we conduct in-depth research on beaten-down stocks and study companies that have made successful comebacks. Subscribe for free and join 26,600 other investors to make sure you don’t miss our next briefing. Subscribe now Despite strong share price gains in the last 1 year, these firms have recently corrected 15%-40%. In case of further drawdowns, we will be interested in these companies because: They are the cleanest way to own the artificial intelligence build without having to pick which chip wins. Our base case projects spend of ~$204 billion by 2030, and our bull case is even higher. They have a monopoly or duopoly position in an industry that is growing directly as a result of increased spending on AI. The key 5 companies in this sector are: ASML: makes lithography machines and has no competitor in the most advanced ones Applied Materials: Applied Materials sells into more process steps than any other company. It leads in the deposition process Lam Research: leads in the etch process and is the one most exposed to memory KLA Corporation: has roughly half the market for the tools that inspect and measure defects in wafers Tokyo Electron: Tokyo Electron is a Japanese firm with strong presence in deposition Every GPU and CPU begins as a silicon wafer. The equipment companies are the ones that turn that blank wafer into a working chip, which puts them at the base of the AI industry. A semiconductor wafer Wafer fabrication process Below, we can see the various steps involved in treating a pure silicon wafer to create the patterns and connections needed for electronics. This is a highly simplified diagram, and the process is not linear as shown below but circular. Each of these steps will be done multiple times ( even 100s ) to create the GPU or CPU. Source: Wafer Fab Process Leading edge chips are built in layers printed one on top of the other. This is a very difficult process as the dimensions are a few nanometers wide. Real life depiction The raw materials for making chips are discs of pure silicon, 300 millimeters across and polished flat. Deposition Every layer on the chip is started by coating it with the required materials. It may be a few atoms thick metal layer or some other electrical part needed in the chip. Lithography: drawing the pattern The lithography machine uses light to project patterns and define the circuits on the wafer. ASML’s latest machines can cost upwards of $350M per machine. Lithography sets the pace of the fabrication process as it prints the patterns on which other machines coat, carve, etch or finally check the circuits. Etch: taking material away This machine removes material from parts where the pattern has not been made. This is exceedingly difficult. For example, cutting a hole straight through 100+ layers without affecting the whole structure. Cleaning, treating, and polishing Cleaning is important as even a speck of dust can render the chip useless. Polishing is required to ensure the surface is even, as you can’t print the next layer correctly on an uneven surface. Metrology and inspection: checking the work Once the above processes have been performed multiple times and we have a wafer with multiple chips on it, it needs to be checked. This is very important as each wafer can be worth 100s of thousands of dollars at this stage. So, searching for defects is important because it improves the process yield. Packaging: increasingly important for AI chips Assembly used to be cheap work. AI changed that because today’s AI chips ( GPUs/CPUs ) are several chips stacked and wired together. This stacked 3D structure requires expensive packaging. In fact, packaging capacity is a key bottleneck. The spend here goes to smaller companies like BESI. We will not cover them in this article. Who buys wafer fab machines? The value chain works like this: Hyperscalers ( cloud providers and Meta ) and model labs order GPUs and CPUs from chipmakers like Nvidia, AVGO, Intel, and AMD. These companies own the intellectual property for chip design but don’t have their own manufacturing capabilities ( except Intel ). These companies then place manufacturing orders with TSMC, Samsung, and Intel ( mostly placing their own orders ). These companies manufacture the wafers and circuits physically. Inside their factories, they require Wafer Fab Equipment ( WFE ). Note: Capital spending estimates vary by estimation method The conversion ratio of Semiconductor capital spending to wafer fab equipment spend is roughly ~58%. The leading equipment companies The diagram below shows RC estimates of how $1 of capex for wafer fab equipment is allocated across process steps. Lithography is the largest share of spending at 28%. Within Litho, ASML is the large monopoly player. Then, the Etch and Deposition steps account for ~21%-22% of WFE spend. In these 2 steps, Lam Research ( LRCX ) and Applied Materials ( AMAT ) are the leading providers, with TEL also having a decent share. Process control is ~11%. The remaining ~18% of the spend covers ion implantation, polishing, cleaning, and coat-and-develop tools. The market share by company in each step is shown below: ASML is the monopoly player in Lithography. The 90% share shown above is for the entire lithography space. In cutting-edge equipment, ASML is the sole provider. Lam Research leads in Etch and is the most exposed to memory companies. AMAT leads in deposition and KLA in the process control step. In fact, KLA holds more than a 50% share in certain leading-edge process control steps. The key reason for sharing this report with you is that the WFE companies have brilliant business models. They have dominant market shares in critical equipment. As and when these stocks experience larger drawdowns, we will share our full deep dives on them. For now, we will share preliminary valuations for each company. RC WFE projections through 2030 Equipment spending was ~$18B in 1995 and ~$116B in 2025, using estimates from SEMI ( a semiconductor industry body ). That’s a nearly 6.5% CAGR over 30 years. The last decade’s CAGR was ~13% as the leading edge has become much more expensive. In 2026, the WFE companies are talking about strong growth exceeding 20%. Below, we show the RC estimate of WFE spending through 2030 for the bear, base, and bull cases. We have done the WFE forecasting bottom-up. We took the expected capex from Samsung, TSMC, Micron, SK Hynix, etc., and then forecast it through 2030. Then we applied a conversion ratio to that spend to estimate our WFE. The key difference among the bear, base, and bull scenarios lies in the shape of the capex. In our bull case, we expect AI spending to continue scaling, driving secular growth through 2030. In the bear scenario, we expect 2028 to be the year when WFE spending declines sharply, as manufacturers have overinvested in capacity. Our base case assumes secular growth, but 2029 WFE spend will be flat to marginally lower than 2028. Cyclical Nature of the WFE industry Historically, this has been a cyclical industry. We expect that to continue. We don’t believe those who say semiconductors have ceased to be cyclical, as they have no data to support it. The recovery from any decline in WFE spend may not be quick. This is the key bear pointer for us to watch if WFE companies enter a deep drawdown, which could happen if AI growth rates plateau or even just slow from their current high. Valuation of LRCX, ASML, AMAT, KLAC Read more

HONHoneywellNeutralHoneywell

3w ago

Deep Dive: Innovative Aerosystems ($IA)

The Rollup Playbook Some incredible compounders of the last few decades have built empires by acquiring small companies. Constellation Software in vertical software. TransDigm in aerospace. HEICO is another example. This playbook is difficult because it's easy to pay more than a company is worth. It is human nature to overestimate cost efficiencies or one’s own ability to cross-sell products in a new market. But it is an interesting mental model. A few key features of the successful rollups are: Pool of targets that others ignore: TransDigm buys makers of sole-source parts that are too small to matter for a Honeywell or a Collins. Constellation buys vertical software companies with small revenue potential. HEICO also rolls up small niche aerospace suppliers. A strong moat for each acquired small business. Price and acquisition discipline Strategy for improving the acquired firm A long runway for targets We have come across a small-cap company ( <$400M EV ) following a similar playbook in the aerospace industry. The industry is important, as aerospace components have a deep moat due to the strict certification process for firms. It’s still early, and they've only been at it for 3 years, but that is the opportunity for investors. Welcome to Rebound Capital. If you are new here, we conduct in-depth research on beaten-down stocks and study companies that have made successful comebacks. Subscribe for free and join 26,500 other investors to make sure you don’t miss our next briefing. Subscribe now Innovative Aerosystems is a small avionics systems integrator that designs, manufactures, and services high-performance avionics for commercial and military aircraft. Their expertise lies in creating complex systems that integrate mechanical, electrical, software, and avionics components. The company was called Innovative Solutions & Support until August 2026, and the ticker changed from ISSC to IA at the same time. IA’s 757/767 COCKPIT/IP configuration The platforms that innovative designs must be certified by the FAA (Federal Aviation Administration ) or qualified by the military customer for defense platforms. Both are time-consuming and expensive. IA ( Innovative Aerosystems ) has both in-house capabilities and IP, and also acquires such technology from third parties, such as Honeywell, to create these platforms. Key customers include Boeing Company, Lockheed Martin, Textron Aviation, and Pilatus Aircraft. Key product lines for IA The core of our thesis on IA rests on its acquisition engine. The products IA acquires are generally low-revenue items ($5M-$30M) or older/niche aircraft. Larger companies don’t want to dedicate resources to these platforms and sell them to smaller firms like IA. The key is that they sell to a capable company with a track record of integrating such platforms, since they don’t want their customers (who buy large platforms worth billions from them) to run into difficulties. The combination of the high technical capabilities required in aerospace, coupled with the moat of firms that have already integrated older ‘orphan’ lines, provides a tailwind for IA to scale revenue in the coming years. The Business IA currently has last twelve months revenue of $93M and adjusted EBITDA of $31M. Its 3 main business segments are: Supplying equipment for new aircraft: utility management system for the Pilatus PC-24, autothrottles for Textron's King Air aircraft, and the flight control computer for Lockheed Martin's F-16. Upgrades for aircraft in service: historically the main source of revenue for IA. This retrofit market includes upgrading modern cockpit displays, navigation equipment, new autothrottles, or an integrated flight platform. IA's Boeing work sits here ( 757 and 767 freighter cockpits ). The global fleet of aircraft is aging as airlines and operators seek to extend the lifetimes of their existing fleets. The average age of the global commercial airline fleet reached a record 14.8 years according to the International Air Transport Association. Aftermarket repair and overhaul: typically, the product lines IA serves remain in service for decades. IA will service and replace key components and platforms for all its products until that technology is in use. Typically, customers do not change suppliers for key components because each component must be recertified by the FAA, a process that can take more than a year. It also requires new engineering and integration effort. As a result, these contracts have higher margins (than OEM production) because they recur. In FY25, product sales accounted for 64% of revenue, and services accounted for 36%. Here is how the numbers have moved since the current CEO took over. Aside from the above classification, IA’s work can be segmented into commercial and defense platforms. In FY25, ~36% of IA’s revenue came from Lockheed Martin ( estimated at ~20% in FY26 ). We estimate that the overall defense portfolio generated ~40% of IA’s total revenue in FY25. This segment is key because once you are inside the defense ecosystem and have earned the confidence of large defense contractors, you become one of the few trusted firms. This is steady recurring work. The Lockheed contract covers the F-16's flight control computer and display generator. IA holds the exclusive license for both, so it will earn from this portfolio as long as the F-16 flies. Lockheed has ~110-120 new Block 70/72 jets in backlog, and ~3,100 older F-16s are in service. Why is it down? The stock peaked at ~$31 in April 2026 and currently is trading at ~$18 per share. The key reasons for the drop are: The acquired F-16 line had a large backlog, and a chunk of it was delivered early in FY25. Management had highlighted this in Aug’25 itself and said that the coming quarters would show a gap. Growth in the March and June quarters was slow, and the stock sold off, even though the rest of the business grew strongly. The stock dropped in April, before the March-quarter results. That was the month IA announced two Honeywell product-line deals. Together with the Moog autopilot line bought in February, the 3 deals cost ~$30M for $10M in revenue , or ~3x sales, the most expensive yet, funded with debt. The drawdown is due to multiple compression. In April’26, the stock traded at ~20x FY26E EBITDA, and at ~$18 per share it is ~13x. The September quarter is guided to $28M-$30M in revenue, up from ~$21M a year ago, so the F-16 gap should be behind them by the time FY26 results come out in December. The market is not giving credit for that yet. IA’s key products and moat IA sits between component manufacturers and aircraft OEMs or operators. It buys mechanical, electrical, and other parts, then adds value by integrating them into an integrated platform. It then gets them approved for use and sells them to OEMs such as Boeing and Lockheed Martin. Source: IA’s product page The key moat in this process is the certification. Avionics is key to safe flight, and replacing these components is unlike replacing a generic electronic component. The alternative part should work with the aircraft’s other systems, be certified by regulators, meet stringent operating parameters, and pass numerous tests. For example, when IA acquired Honeywell's F-16 products, every unit built at IA's Exton plant had to be requalified with Lockheed before it could ship. Aside from certification, the second moat is that many of these small product lines are virtual monopolies. Once a product is certified, the approval holder controls the design data, so repairs and upgrades run through them for decades. So once IA gets approval for a particular product, all repairs and upgrades come to them for decades. A 767 freighter plane whose inertial reference units need repair and which has been in service for 25 years will have to come to IA for repairs. This is why IA can earn ~50% gross margins on lines that Honeywell gives up. To compete, a rival would need to spend $8M-$20M on certification for a product that earns $5M-$15M a year ( which would be a poor return ). Growth Strategy: steady organic growth + acquisitions IA’s strategy is to grow organic revenue by high single digits in the coming years. On top of that, they will acquire more orphan product lines that the larger companies don’t want to focus on. Management has set a medium-term target of $250M in revenue with a 25-30% EBITDA margin by FY2029. Organic growth comes from: Newly certified products used on older fleets. IA is now certified for approach and navigation products on the 757 and 767 freighters. These are older aircraft that will fly for another decade. Repair work on acquired products. Honeywell was not marketing its legacy inertial reference units and autopilot to new customers. But IA is chasing that volume. Higher content in platforms already certified. For example, Pilatus is building ~60 PC-24s a year against a plan of 30. New OEM programs in FY27. The L3Harris RMU ( December quarter ) and the KC-767 tanker ( March quarter ) ramp in FY27-28. This will lead to strong organic growth over the next 2 years. The roll-up opportunity in orphan products This section answers why larger companies sell mature product lines with 25-30% adjusted EBITDA margins to IA. Let’s take Honeywell’s example. They are a large aerospace company catering to many SKUs and components. They need to drive innovation and compete for future programs like unmanned aircraft and the latest military aircraft. So, for them, running a separate assembly line for the F-16 flight computer or communication units is non-core. They cannot dedicate resources to so many small SKUs. Each such line may generate $5M-$30M in revenue. So, to keep their customers happy ( since the same customers will buy cutting-edge equipment from Honeywell ), they will sell the rights to these smaller product lines to a company like IA. In our estimate, Honeywell would have achieved much less than 40% gross margins on these products, while IA can dedicate resources to improving and optimizing its profitability and achieve 40%-50% gross margins. This is a secular tailwind for IA, as it can continue to accumulate such ‘orphan’ platforms/products ( Orphan lines or products are those that very few companies want to develop or sell due to the low revenue opportunity ). IA has done seven such deals since June 2023 ( five of them with Honeywell ). In total, it paid ~$110M for $65M-$75M of annual revenue, which works out to ~1.5x-1.75x sales. The cheapest was the F-16 line at ~0.5x sales. Honeywell was making less than 25% gross margin on it, which is why they sold. The most expensive deals were in 2026, at ~3x sales. At IA’s current margins, every $1 of acquired revenue generates ~16 cents of free cash flow a year, and IA has been paying ~$1.75 for it. The F-16 line is a good example of what IA does post-acquisition. Once IA moved the circuit-card assembly in-house, the line's gross margin rose from below 25% towards the company average of ~50%. The key is to never overpay for such products and to drive strong ROI on the invested capital. This is what we think the current CEO has shown he can accomplish. Mr. Askarpour: CEO and key man for the thesis Shahram Askarpour was the engineering Vice President from 2003 to 2012 and then became the President from 2012 onwards. He became CEO in 2022, after IA’s founder and then-CEO, Geoffrey Hedrick, died in early 2022. Here is a comparison of Innovative’s growth during the five years before the CEO transition and since the new CEO took over. This is a key risk for the company. The architect of this new IA is Mr. Askarpour. It is not apparent to us that this sort of acquisition strategy can succeed under a new CEO ( he is 68 ). This is indeed a special kind of investing acumen. Seen another way, the current CEO’s knowledge and depth of understanding of the business is a moat as well. How IA scores on the 5 rollup features Going back to the checklist we started with: Read more

NFLXNetflixNeutralNetflix

9/5/2026

A small favor

Hi, Rebound Capital is now on Instagram and YouTube . You know we don’t mail you lightly. We’ve wanted to do video for a long time, and we’ve finally found the perfect analyst to do it. Our goal is to build a small corner of YouTube where we do real equity research instead of another “ #1 stock to buy today ” channel. The research will be as in-depth as what you’ve seen in the newsletter, just in a different format. It’s early and the community is small, so your support would mean the world to us. Start with our take on Netflix and the one advantage that sets it apart. Rebound Capital on YouTube Rebound Capital on Instagram Either way, the newsletter isn’t changing. It’s just another place to find the same research. If you have thoughts on the format or what you’d like us to cover, reply to this email. Thanks for your time. RC Team