| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 10.57% | 14.32% | 8.6% |
Conestoga's Small Cap Composite returned 14.32% net in 2Q26 but lagged the Russell 2000 Growth Index's 25.71% return, which delivered its strongest first-half performance since 1991. The underperformance reflected one of the most concentrated and momentum-driven advances in recent Small Cap history, with AI-related semiconductors rising 98% and the highest beta stocks contributing 38% of index returns. Despite this headwind, portfolio companies delivered superior operating results, with sales growth of 14.3% and EBITDA growth of 20.0% versus 8.4% and 12.1% for the benchmark. The manager believes the speculative leadership centered on AI scarcity dynamics will not persist as supply constraints ease and market leadership broadens. With the Russell Reconstitution removing $575 billion of AI beneficiaries and the rate backdrop shifting toward potentially tighter policy, the manager expects quality characteristics—strong balance sheets, durable earnings, and high returns on capital—to become increasingly valuable. The firm remains confident in portfolio fundamentals and committed to its quality-focused, long-term compounding approach.
Conestoga invests in high-quality, conservative growth companies with strong balance sheets, high returns on capital, and durable business models capable of compounding value over time, believing these characteristics will outperform as market leadership broadens beyond the current narrow, speculative rally.
The manager does not expect the speculative leadership which drove second quarter returns to persist. They believe investor capital has crowded into a relatively narrow set of AI-related trades centered around scarcity of goods, a dynamic that history suggests typically normalizes as supply constraints ease and market leadership broadens. With the Russell Reconstitution removing many AI beneficiaries and the interest rate backdrop shifting toward potentially tighter monetary policy, the manager believes companies with strong balance sheets, durable earnings growth, and high returns on capital will be better positioned to outperform. While disappointed with relative performance this quarter, they remain confident in the fundamental strength of portfolio holdings and believe quality characteristics that have recently been out of favor will become increasingly valuable as market leadership continues to broaden.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Jul 22 2026 | 2026 Q2 | AAON, AZTA, BCPC, BL, BMI, CCCS, CWAN, CXT, DGII, DSGX, FSV, KGS, KN, LMAT, MGY, MRCY, MTDR, NOVT, PRM, SITE | AI, Data centers, defense, momentum, Quality, semiconductors, small caps, software | - | Conestoga's Small Cap strategy lagged in 2Q26 as AI-driven speculation created historic market concentration, with semiconductors up 98% and high-beta stocks dominating. Portfolio companies delivered superior fundamentals—14.3% sales growth versus 8.4% for the benchmark—but quality factors underperformed. The manager believes this narrow leadership will not persist as AI supply constraints ease and expects quality characteristics to reassert themselves as market leadership broadens and monetary policy potentially tightens. |
| Apr 21 2026 | 2026 Q1 | AORT, AZTA, BL, CWST, DGII, ESE, HLIO, HLMN, LMAT, NPO, RBC, RGEN, SPSC, STVN, UTI | defense, energy, growth, Quality, small cap, software, Valuations | - | Small cap manager underperformed in Q1 2026 despite solid company fundamentals as AI disruption fears pressured software holdings and energy strength hurt relative performance. High-quality small caps trade at historically low valuations following multiple compression. Defense and aerospace holdings benefited from strong order growth. Manager maintains focus on durable businesses while selectively reducing software exposure. |
| Jan 18 2026 | 2025 Q4 | AAON, AZTA, BMI, CWAN, DGII, DSGX, FSV, KRMN, LMAT, NGEN, NOVT, RBC, RGEN, ROAD, SPSC, STVN, TREX, TRNS, VCEL, VERX | Biotechnology, credit, Performance, Quality, small caps, tariffs, volatility |
CWAN RBC RGEN FSV BMI KRMN MLAB |
Conestoga's Small Cap strategy underperformed in 2025 due to market dominance by low-quality, unprofitable stocks and minimal biotech exposure. However, quality stocks began outperforming from mid-October, and the manager expects Small Caps to outperform Large Caps given superior earnings growth prospects, valuation discounts, and pro-growth policy tailwinds. |
| Oct 13 2025 | 2025 Q3 | AAON, BCPC, CSWI, CWST, DSGX, ESE, EXPO, FSV, HLIO, HLMN, MIR, MRCY, NOVT, QTWO, RBC, ROAD, SLP, SPSC, STVN, VERX | Beta, defense, growth, profitability, Quality, small cap, software, technology |
MRCY US HLIO US ROAD US |
Conestoga's Small Cap Growth strategy faced headwinds from extreme low-quality market leadership in Q3, with unprofitable and high-beta stocks dominating returns. The firm's disciplined focus on profitable, sustainable growth companies underperformed during this speculative rally phase. Management remains confident that market leadership will eventually shift back toward quality fundamentals, positioning the strategy for future outperformance when this transition occurs. |
| Jul 22 2025 | 2025 Q2 | AAON, AGYS, BFAM, CWAN, CWST, DGII, DSGX, ESE, EXPO, FSS, FSV, JBTM, MLAB, MMSI, NEOG, NOVT, RBC, ROAD, SLP, STVN | growth, healthcare, industrials, infrastructure, Quality, small cap, tariffs, technology |
PL WLDN ROAD MEG HLMN ERII SSTI KIDS SLP |
Conestoga's quality-focused small cap strategy underperformed in 2Q25 as unprofitable, high-beta stocks led the market rally following tariff policy relief. The portfolio's emphasis on profitable companies with conservative growth characteristics faced headwinds, but management remains confident given attractive small cap valuations and improving fundamentals after years of earnings contraction. |
| May 1 2025 | 2025 Q1 | AAON, ALTR, AZTA, BCPC, CWST, DSGX, ESE, EXPO, FSV, MMM, MMSI, NEOG, PAYX, PYCR, RBC, ROAD, SPSC, SSD, TRNS, VERX | growth, industrials, Outperformance, Quality, small caps, tariffs, technology | - | Conestoga's Small Cap Growth strategy declined 11.35% in Q1 2025, modestly underperforming due to company-specific issues despite market volatility favoring their high-quality approach. Tariff concerns and technology earnings slowdown drove broad small-cap weakness. The firm believes their domestically-oriented portfolio with strong pricing power and balance sheets is well-positioned for tariff challenges and reshoring benefits. |
| Dec 31 2024 | 2024 Q4 | AAPL, AMZN, EXPO, FOXF, GOOG, JBT, META, MSFT, MSTR, NVDA, PRO, ROAD, SITE, SLP, SMCI, SPSC, SSD, TRNS, TSLA, VCEL | AI, growth, infrastructure, small cap, software, technology, valuation | - | Conestoga's small cap strategy underperformed in 2024 due to AI speculation favoring hardware stocks they avoided. The firm sold Fox Factory and sees Construction Partners benefiting from infrastructure spending. Management believes small caps are better positioned for 2025 given significant valuation gaps versus large caps that historically lead to small cap outperformance periods. |
| Oct 23 2024 | 2024 Q3 | AAON, ALTR, CSWI, CWST, DSGX, EXPO, FOXF, FSV, GWRE, NOVT, NRC, OFLX, PRO, QTWO, ROAD, SLP, SPSC, SSD, TREX, VCEL | growth, HVAC, industrials, infrastructure, small cap, software, technology | - | Conestoga's Small Cap strategy outperformed in Q3 despite high volatility, driven by strong Industrials selection particularly in infrastructure-benefited names. Fed rate cuts support small cap outlook historically. Technology software overweight weighed on results while avoiding Energy helped. Portfolio positioned for small cap outperformance versus large caps given earnings growth expectations and attractive relative valuations. |
| Jun 30 2024 | 2024 Q2 | AGYS, ALTR, CWST, DGII, DH, DSGX.TO, EXPO, LMAT, MMSI, MODN, MSA, PYCR, RGEN, SITE, SLP, SPXC, SSD, STVN, TREX, ULS | Bioprocessing, growth, healthcare, industrials, small caps, software, technology | - | Conestoga's small cap strategy underperformed in Q2 amid what management calls peak pessimism for the asset class. Despite current headwinds, they see opportunity in relative valuations near early 2000s lows and question the permanence of large cap tech dominance, maintaining conviction in long-term outperformance potential. |
| Apr 15 2024 | 2024 Q1 | AAPL, AXON, CCCS, CWST, DGII, EXPO, MRCY, MSTR, NEOG, NVDA, PLOW, PRO, PYCR, ROAD, SLP, SMCI, SPSC, TSLA, VCEL, WK | growth, healthcare, industrials, infrastructure, small cap, technology | - | Small cap growth strategy underperformed in Q1 due to lack of exposure to AI beneficiaries Super Micro Computer and MicroStrategy. Technology stock selection challenged returns while waste management and healthcare provided bright spots. Manager maintains conviction in small cap valuations despite 14-year underperformance cycle, selectively adding quality SaaS platforms while trimming oversized positions. |
| Dec 31 2023 | 2023 Q4 | AAON, ALTR, AQUA, BCPC, BL, CWST, DGII, DSGX, FOXF, HLIO, LMAT, MODN, PYCR, RBC, SITE, SSD, STVN, TREX, VCEL, XYL | Construction, growth, healthcare, industrials, Quality, small cap, technology | - | Conestoga's small cap strategy outperformed for 2023 despite Q4 underperformance as rate cut expectations favored longer duration stocks. Strong industrial holdings like Simpson Manufacturing and AAON drove gains while avoiding Energy sector helped. Manager remains bullish on small cap valuations at multi-decade lows versus large caps and maintains focus on quality companies with sustainable earnings growth. |
| Sep 30 2023 | 2023 Q3 | ALTR, AZTA, CSWI, CWAN, CWST, DGII, FICO, HLIO, MLAB, MODN, NOVT, NRC, OMCL, PRO, RGEN, ROAD, SPSC, SSD, TRNS, VERX | growth, healthcare, industrials, Quality, small cap, technology | - | Conestoga's small cap strategy outperformed in Q3 2023's declining market through quality stock selection, emphasizing profitable companies with strong balance sheets. Despite continued large cap outperformance, the firm maintains conviction in an eventual small cap cycle as valuations become more attractive. Their focus on higher-quality businesses positions portfolios defensively for higher interest rates and potential recession. |
| Jun 30 2023 | 2023 Q2 | AAPL, AXON, BL, DSGX, FICO, FOXF, FSS, LMAT, MLAB, MRCY, MSFT, NOVT, PYCR, RBC, ROAD, SITE, SPSC, SSD, TREX, WSO | growth, industrials, Performance, small cap, technology | - | Conestoga's Small Cap strategy underperformed in Q2 2023 due to negative stock selection in Industrials and lack of exposure to surging computer hardware. Supply chain disruptions and defense budget uncertainty weighed on key holdings like Mercury Systems. The firm maintains conviction in its high quality conservative growth approach targeting companies capable of multi-cycle growth. |
| May 23 2023 | 2023 Q1 | AAON, ALTR, AXON, AZTA, CWAN, CWST, DGII, DSGX, EXPO, FOXF, FSV, MMM, MODN, NEOG, NOVT, PLOW, QTWO, SPSC, SSD, STVN | Banking, growth, healthcare, industrials, Performance, Quality, small cap, technology | DGII | Conestoga Small Cap outperformed 12.26% vs 6.07% benchmark despite banking sector turmoil from Silicon Valley Bank collapse. Technology rotation and healthcare strength drove performance while Energy underweight helped. Banking instability may tighten financial conditions and increase recession risk, favoring quality companies with strong balance sheets and sustainable growth. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
AIAI-related stocks, particularly semiconductors and hardware, drove extreme market concentration in 2Q26, with semiconductor stocks in the Russell 2000 Growth rising 98%. The manager has limited exposure to this speculative segment, viewing the AI trade as crowded into scarcity-driven dynamics that typically normalize as supply constraints ease. The Russell Reconstitution removed many AI beneficiaries from the Small Cap universe. |
Semiconductors Data Centers Hardware Speculation |
Small CapsThe manager believes conditions are finally in place for a multi-year rotation into Small Caps, driven by accelerating earnings growth and historically attractive valuations relative to Large Caps. The Russell 2000 delivered its strongest first-half performance since 1991, though leadership was historically narrow and concentrated in high-beta, momentum-driven stocks. |
Rotation Valuations Earnings Growth Russell 2000 | |
QualityHigh-quality stocks characterized by stronger balance sheets, higher returns on capital, and more durable business models continued to lag in 2Q26. The highest quality stocks in the Russell 2000 Index have underperformed in four of the past five quarters. The manager remains committed to this approach despite near-term underperformance, believing quality characteristics will become increasingly valuable as market leadership broadens. |
Balance Sheets Returns on Capital Durable Growth Underperformance | |
MomentumHigh momentum stocks dramatically outperformed in 2Q26, contributing to one of the most concentrated return quarters in Russell 2000 history. The momentum trade reached historic highs, creating significant headwinds for the manager's quality-focused discipline. This factor performance reflected extreme speculative leadership that the manager does not expect to persist. |
Factor Performance Concentration Speculation | |
DefenseDefense stocks performed well during the quarter, with Mercury Systems being a top contributor after reporting record quarterly bookings of $348 million. The operational turnaround continues to gain traction as stronger orders translated into accelerating revenue growth and expanding margins, supporting confidence in improved execution. |
Defense Electronics Bookings Turnaround | |
Data CentersAAON was among the portfolio's strongest contributors following exceptional demand for its BASX division, which provides liquid-cooling solutions for data centers. Management raised 2026 BASX revenue outlook to approximately $1.0 billion from $715 million, reflecting accelerating demand from AI-driven data center investments. The company prioritized growth and market share over near-term profitability. |
Liquid Cooling HVAC AI Infrastructure | |
EnergyThe manager initiated three new positions in the energy sector during the quarter: Kodiak Gas Services, Magnolia Oil & Gas, and Matador Resources. These companies are positioned to benefit from growing natural gas infrastructure demand, LNG exports, and power generation supporting AI-related data center development, with disciplined capital allocation and strong free cash flow generation. |
Natural Gas LNG Compression Permian Basin | |
RatesThe interest rate backdrop shifted meaningfully during 2Q26. Investors began the year expecting multiple Federal Reserve rate cuts, but markets shifted in the second quarter and are now weighing the likelihood of tighter monetary policy by year end. The manager believes companies with strong balance sheets and high returns on capital are better positioned in this environment. |
Federal Reserve Monetary Policy Rate Cuts | |
| 2026 Q1 |
Small CapsSmall Cap equities initially performed well but momentum faded in February due to rising energy prices and geopolitical uncertainty. Despite elevated volatility, Small Caps outperformed Large Caps by more than five percentage points, suggesting the long-anticipated broadening of market leadership beyond Mega Cap stocks may be delayed rather than derailed. |
Small Cap Russell 2000 Outperformance Volatility Leadership |
QualityHigh quality small cap equities are currently trading at or near historically low relative valuation levels following broad-based multiple contraction. Portfolio companies have continued to deliver strong sales and EBITDA growth relative to benchmarks. The manager emphasizes retaining exposure to companies with durable, high-quality characteristics including higher ROIC, strong balance sheets, and consistent free cash flow. |
Quality Valuations ROIC Balance Sheets Free Cash Flow | |
EnergyEnergy was far and away the strongest performing sector with gains that were the fourth-best quarterly relative performance by a leading sector since 1985. Rising geopolitical tensions including escalation of conflict involving Iran contributed to higher oil prices and strong returns across energy-related equities. The firm's lack of exposure to the space detracted from relative performance. |
Energy Oil Prices Geopolitical Sector Performance | |
AIInvestor sentiment toward software companies weakened as markets increasingly focused on the potential for AI-driven disruption to compress traditional software moats and long-term growth expectations. Several software holdings were swept up in significant underperformance as investors question long-term viability in the age of AI. The firm selectively reduced its overweight to software during the quarter. |
AI Software Disruption Moats Valuations | |
DefenseSeveral holdings benefited from continued strength in aerospace and defense where demand remains robust and increasingly visible through growing backlogs. The mix shift toward higher-value programs supported both growth and profitability. Companies like ESCO Technologies and RBC Bearings saw meaningful acceleration in orders and program activity. |
Defense Aerospace Backlog Programs Orders | |
| 2025 Q4 |
Small CapsSmall Caps achieved nearly 9% earnings growth in 2025 and are projected to grow by an additional 32% in 2026, contrasting with 13% growth expected for Large Caps. Small Caps are trading at a nearly 25% discount to Large Caps. The firm believes there is a compelling case for Small Caps to outperform Large Caps for the first time since 2020, potentially heralding a new extended cycle of Small Cap outperformance. |
Small Caps Earnings Growth Valuation Discount Outperformance |
QualityThe market experienced extreme leadership concentrated in historically narrow segments, with low-quality, high-beta, speculative stocks dominating returns during the April to October rally. High-quality stocks like those held by Conestoga gradually started to close the gap, with profitable stocks outperforming unprofitable counterparts by over 5% from mid-October to year-end. Historically, new Small Cap bull markets start with low-quality leadership before high-quality stocks reclaim leadership. |
Quality Profitable Stocks Market Leadership Bull Markets | |
BiotechnologySmall Cap Biotech/Pharmaceutical stocks emerged as significant outperformers in the fourth quarter, representing 132% of the Russell 2000 Growth Index's total returns in Q4 alone, after comprising just 11% through the third quarter. The gains in Small Cap Biotech/Pharmaceutical stocks more than offset combined losses in Technology, Industrial, and Consumer Discretionary stocks. Conestoga had limited exposure to this sector, which negatively impacted relative performance. |
Biotechnology Pharmaceuticals Sector Rotation Outperformance | |
Trade PolicyThe White House announced a comprehensive new tariff strategy in February, causing stock prices to plummet by over 20% in a matter of weeks. By early April, potential modifications to tariff policies that could mitigate their impact led to a dramatic turnaround, with the Russell 2000 Growth Index surging nearly 50% over the next six months. The market's reaction to tariff policy changes was a major driver of volatility throughout 2025. |
Tariffs Trade Policy Market Volatility Policy Impact | |
Credit StressConcerns about credit quality in the private credit and regional banking sectors emerged in the fourth quarter, underscored by the bankruptcy filing of auto parts supplier First Brands and allegations of fraud at subprime auto lender Tricolor. JPMorgan CEO Jamie Dimon remarked that 'when you see one cockroach, there are probably more,' highlighting systemic credit concerns. These developments triggered a 10% correction in the Russell 2000 Growth Index. |
Credit Quality Banking Private Credit Bankruptcy | |
| 2025 Q3 |
Small CapsSmall cap stocks reached new all-time highs in Q3, with the Russell 2000 Index rising 12% and significantly outperforming the S&P 500. The rally has been characterized by historically narrow leadership, with the top 20 performing stocks representing 78% of the Russell 2000 Growth Index's overall gains year-to-date. This extreme concentration exceeds even the COVID rally period when the top 20 stocks made up just 39% of returns. |
Russell 2000 Outperformance Concentration Leadership |
QualityThe current market environment has been challenging for high-quality growth strategies as low-quality factors have dominated. Unprofitable stocks in the Russell 2000 Growth Index outperformed profitable peers by 1600 basis points in Q3, while the highest beta quintile gained 24% and represented over half of the Index's returns. Conestoga's high-quality conservative growth approach focuses on profitable companies with sustainable earnings growth. |
Profitability Beta Sustainable Growth Conservative | |
DefenseDefense spending optimism drove strong performance in defense-related holdings. Mercury Systems benefited from expectations of accelerating growth in secure, mission-critical defense electronics, strong order momentum, and easing supply chain pressures that improved delivery and margins. The defense sector showed resilience amid broader market volatility. |
Defense Electronics Order Momentum Supply Chain | |
| 2025 Q2 |
Infrastructure SpendingFederal infrastructure investment is driving robust demand in road maintenance and infrastructure markets. Construction Partners has been a leader in seven of the past nine quarters due to this infrastructure spending. The company reported solid fiscal 2Q results with organic revenue increases and record backlog figures. |
Infrastructure Construction Federal Roads Backlog |
Trade PolicyTariff policies created significant market volatility during the quarter, with Liberation Day announcements causing initial declines followed by relief rallies. Multiple portfolio companies were impacted by tariff concerns, including Descartes Systems, Simulations Plus, Merit Medical, and Mesa Laboratories citing Chinese operations exposure. |
Tariffs China Trade Policy Volatility | |
QualityThe portfolio emphasizes profitable companies with conservative growth characteristics, which proved challenging during periods when unprofitable, high-beta stocks outperformed. Loss-making stocks in the Russell 2000 rose 13.1% while profitable companies rose 6.8%, creating headwinds for the high-quality growth approach. |
Profitability Conservative Beta Fundamentals Growth | |
| 2025 Q1 |
Small CapsSmall capitalization stocks declined nearly 11% in the first quarter and were down roughly 20% from their post-election highs in November 2024. The firm expects their investment approach to outperform in periods of heightened uncertainty, which proved true as their strategies outperformed benchmarks during the quarter's volatility. |
Russell 2000 Volatility Outperformance Uncertainty Growth |
Trade PolicyThe President's announcement that tariffs would be detailed in early April pushed equities sharply lower. The firm believes their companies are well positioned to handle tariff challenges through pricing power, supply chain repositioning, and strong balance sheets. They expect small cap companies to benefit from reshoring that is expected to take place because of the tariffs. |
Tariffs Supply Chain Pricing Power Reshoring Balance Sheets | |
QualityThe portfolio benefited from high-quality factor leadership as profitable companies measured by Return on Invested Capital and EBITDA margins declined less significantly than their high beta, non-earning counterparts. Conestoga's emphasis on higher-quality, conservative growth companies was key to relative outperformance. |
ROIC EBITDA Profitability Conservative Growth High Quality | |
| 2024 Q4 |
AIEnthusiasm for all things related to Artificial Intelligence created what Conestoga believes to be a more speculative investing environment, which proved challenging for their investment strategies. The lack of exposure to computer hardware industry, which surged over 100% in the Russell 2000 Growth Index on AI-related hardware enthusiasm, was a key source of underperformance. |
Hardware Speculation Computer |
Small CapsConestoga believes small cap stocks are better positioned headed into 2025, maintaining this outlook since early 2023. Large caps outperformance over the past 14 years has caused price-earnings ratios for large caps to rise well above those of small caps. A valuation gap as large as the one that existed in November 2024 has historically been followed by periods of small cap outperformance in 96% of all periods since 1968. |
Valuation Outperformance Positioning | |
Infrastructure SpendingConstruction Partners has been a leader in six of the past seven quarters, driven by robust demand in the road maintenance and infrastructure market, partially driven by the infrastructure investment made by the Federal government. The company made a platform acquisition in Texas that boosted revenue by $530 million at a margin of over 22%. |
Roads Federal Construction | |
SoftwareWithin the software industry, which Conestoga emphasizes for its higher levels of profitability and recurring revenue, several positions underperformed including PROS Holdings, Simulations Plus, and SPS Commerce. However, Q2 Holdings rose over 100% in 2024 and offset some negative effects. |
Recurring Profitability SaaS | |
| 2024 Q3 |
Infrastructure SpendingU.S. infrastructure spending has benefited companies like Construction Partners in two ways: the level of demand and funding available, and supply tightness in hot mixed asphalt plants creating better pricing and expanding margins. Infrastructure spending programs continue to drive growth across multiple portfolio holdings. |
Infrastructure Construction Asphalt Funding Demand |
AIArtificial Intelligence is driving growth across multiple portfolio companies. Exponent benefits from AI-related consulting in wearables technologies, battery manufacturing, and advanced driver capabilities. The technology represents a secular growth market for specialized consulting services. |
AI Consulting Technology Growth Secular | |
SoftwareSoftware companies showed mixed performance with strong results from Q2 Holdings in digital banking services, while PROS Holdings faced challenges from elongated sales cycles. The software industry remains a significant overweight in the portfolio despite some headwinds. |
Software SaaS Digital Banking Sales | |
HVACHVAC companies like CSW Industrials and AAON performed well, with CSW benefiting from residential heating and ventilation maintenance markets, while AAON saw strength in data center markets and resolution of earlier production issues leading to increased efficiencies. |
HVAC Residential Data Centers Maintenance Production | |
| 2024 Q2 |
Small CapsManager discusses the current period as peak pessimism for small caps, with private equity and delayed IPOs shrinking the universe. However, they believe the current prophecy of permanent large cap tech dominance has the cautionary ring of 'it's different this time' and note that relative valuations hover near early 2000s lows. |
Valuation Outperformance Private Equity IPO Technology |
SoftwareThe software industry has been negatively impacted by perceived shift in spending to AI-related hardware. However, Conestoga's software holdings outperformed the Index software industry, with companies like Altair Engineering, Descartes Systems, and Simulations Plus being top contributors. |
AI Hardware Enterprise SaaS Simulation | |
HealthcareHealth Care was challenging with negative stock selection effects. Stevanato Group fell after raising equity capital and missing quarterly results, while Repligen reported results that beat revenue expectations but fell short on earnings. The bioprocessing market shows slow recovery. |
Bioprocessing Medical Devices Pharmaceuticals CDMO Biopharma | |
| 2024 Q1 |
Infrastructure SpendingThe Infrastructure Investment and Jobs Act (IIJA) is creating significant demand for construction, repair, and maintenance of America's surface infrastructure. Construction Partners has benefited with 13 consecutive quarters of backlog growth as strong demand offsets seasonal weakness. |
Infrastructure Construction IIJA Backlog Surface |
AIArtificial intelligence-related stocks have surged, with Super Micro Computer rising from $5 billion to $60 billion market cap. The AI boom has created significant market concentration effects, though Conestoga lacks exposure to these high-flying names due to market cap constraints. |
Artificial Intelligence SMCI Market Cap Technology Growth | |
Waste ManagementWaste management companies performed well given the consistency of their business models. Casella Waste Systems proved out favorable price vs. cost dynamics, improved labor conditions, and solid volumes in Q4 earnings. |
Waste Consistency Pricing Labor Volumes | |
| 2023 Q4 |
Small CapsConestoga remains positive on long-term expectations for relative performance of small caps over large caps, noting that relative valuations of small caps to large caps continues to sit near multi-decade lows. The market capitalization of the top five stocks in the S&P 500 Index is now three times the market capitalization of the entire Russell 2000 Index, representing unusual market breadth narrowness. |
Valuation Outperformance Market Breadth Russell 2000 S&P 500 |
QualityConestoga remains steadfast in seeking companies that can generate longer-term, sustainable growth in earnings, coupled with balance sheet strength and capable management teams. They believe a portfolio of higher quality companies with durable competitive advantages will serve clients well in the years ahead. |
Earnings Growth Balance Sheet Management Competitive Advantages Sustainable | |
ConstructionSeveral construction-related holdings performed well, including Simpson Manufacturing which exceeded revenue and earnings expectations and benefited from lower interest rates improving market sentiment for housing-related stocks. The company designs and manufactures connectors, fasteners, and anchors used in residential and commercial construction. |
Housing Interest Rates Residential Commercial Building Materials | |
| 2023 Q3 |
QualityConestoga emphasizes profitable companies with lower debt levels relative to benchmarks, which they believe positions their strategies for outperformance in an economy facing higher interest rates and potential recession. Higher-quality companies enjoyed stronger relative performance in the third quarter. |
Profitability Balance Sheet Debt Levels Quality Metrics |
Small CapsThe firm maintains expectations for a new small cap cycle after twelve years of underperformance relative to large caps. They note that small cap valuations relative to large caps have become more appealing, despite their forecast proving early so far. |
Small Cap Cycle Relative Valuation Russell 2000 Market Cap | |
| 2023 Q2 |
AIInvestor enthusiasm for Artificial Intelligence drove performance of seven large technology stocks that were responsible for nearly all of the S&P 500's return in the first six months of 2023. The portfolio suffered from lack of exposure to the computer hardware industry which was up almost 75% over three months. |
Technology Hardware Software |
Supply ChainMultiple portfolio companies faced supply chain disruptions including Mercury Systems hampered by supply chain issues and delays in defense programs, and Mesa Laboratories impacted by supply chain constraints in their calibrations solutions division. |
Defense Industrial Manufacturing | |
Defense SpendingDefense sector faced headwinds with Mercury Systems hampered by delays in defense programs advancing with budget uncertainty. The company announced strategic alternatives consideration but ultimately was not purchased and CEO resigned. |
Defense Budget Government | |
Waste ManagementCasella Waste Systems performed well as the strategy's sole position in Utilities sector. The company raised additional capital through secondary offering to support acquisitions in adjacent markets, positioning for long-term revenue and earnings growth. |
Utilities Acquisitions Growth | |
| 2023 Q1 |
BankingSilicon Valley Bank's unprecedented depositor flight and transition to FDIC receivership created banking sector turmoil. Rising interest rates created asset-liability mismatches for many banks, with depositors seeking higher returns while limiting uninsured deposits. Small- to medium-sized banks saw sharp stock price declines as investors reassessed viability and future earnings. |
Regional Banks Credit Stress Deposits Interest Rates |
TechnologyTechnology sector benefited from rotation back to growth stocks after underperforming in 2022. Higher-growth stocks rebounded as market favored profitable companies over unprofitable ones. Software companies like ALTR, SPSC, and MODN showed resilience to macroeconomic pressures with strong revenue growth and margin expansion. |
Software Growth Cloud Enterprise Software | |
HVACAAON demonstrated strong performance with 86% sales growth and successful supply chain management. The company continued to show significant gross margin improvement and maintained strong demand with backlogs up over 110%. HVAC equipment manufacturers benefited from pricing power and operational efficiency. |
Industrial Equipment Pricing Power Supply Chain | |
HealthcareHealthcare sector showed positive performance with medical supplies companies like West Pharmaceuticals and Stevenato Group posting strong results. The sector benefited from underweight positioning in weak-performing biotechnology industry. Companies demonstrated resilience in core business operations despite COVID-related revenue normalization. |
Medical Devices Biotechnology Life Sciences |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Mar 31, 2023 | Fund Letters | Conestoga Small Cap Composite | DGII | Digi International, Inc. | Technology Hardware & Equipment | Communications Equipment | Bull | NASDAQ | Asset Monitoring, Enterprise software, IoT, recurring revenue, SaaS, subscription model, technology hardware, Wireless Communication | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | CWAN | Clearwater Analytics Holdings, Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | Client Retention, Investment Operations, recurring revenue, Software Acquisition | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | RBC | RBC Bearings, Inc. | Industrials | Industrial Machinery | Bull | New York Stock Exchange | Aerospace, Defense, Free Cash Flow, operating leverage, Precision Manufacturing | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | RGEN | Repligen Corp. | Health Care | Life Sciences Tools & Services | Bull | NASDAQ | biologics, Bioprocessing, Consumables, Destocking, operating leverage | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | FSV | FirstService Corp. | Real Estate | Real Estate Services | Bear | NASDAQ | execution risk, organic growth, Property-services, recurring revenue | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | BMI | Badger Meter, Inc. | Information Technology | Electronic Equipment & Instruments | Bull | New York Stock Exchange | Free Cash Flow, recurring revenue, Smart Metering, Water infrastructure | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | KRMN | Karman Holdings, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Defense, Ip Protection, Long-Cycle Programs, Sole Source | Login |
| Jan 18, 2026 | Fund Letters | Bob Mitchell | MLAB | Mesa Laboratories, Inc. | Health Care | Life Sciences Tools & Services | Bear | NASDAQ | Acquisitions, Life Sciences Tools, margin pressure, Organic Growth Constraints | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | MRCY US | Mercury Systems, Inc. | Industrials | Aerospace & Defense | Bull | NASDAQ | Aerospace, backlog, Defense, electronics, growth, Margins, Modernization | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | HLIO US | Helios Technologies, Inc. | Industrials | Machinery | Bull | NYSE | growth, Hydraulics, machinery, Margins, restructuring, valuation | Login |
| Oct 13, 2025 | Fund Letters | Bob Mitchell | ROAD US | Construction Partners, Inc. | Industrials | Construction & Engineering | Bull | NASDAQ | backlog, construction, growth, infrastructure, Margins, Projects, valuation | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | PL | Planet Labs PBC | Industrials | Aerospace & Defense | Bull | NYSE | cashflow, Defense, Demand, Geospatial, Satellites | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | WLDN | Willdan Group, Inc. | Industrials | Consulting Services | Bull | NASDAQ | Electrification, Grid, growth, infrastructure, utilities | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | ROAD | Construction Partners, Inc. | Industrials | Construction & Engineering | Bull | NASDAQ | backlog, construction, growth, infrastructure, Margins | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | MEG | Montrose Environmental Group, Inc. | Industrials | Environmental & Facilities Services | Bull | NYSE | Compliance, Environmental, growth, Remediation, services | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | HLMN | Hillman Solutions Corp. | Consumer Discretionary | Building Products | Bear | NASDAQ | Costs, Hardware, Margins, retail, tariffs | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | ERII | Energy Recovery, Inc. | Industrials | Electrical Components & Equipment | Bear | NASDAQ | Desalination, energy, Execution, tariffs, Volatility | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | SSTI | SoundThinking, Inc. | Information Technology | Application Software | Bear | NASDAQ | AI, Demand, Municipalities, Publicsafety, SaaS | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | KIDS | OrthoPediatrics Corp. | Health Care | Health Care Equipment | Bull | NASDAQ | growth, guidance, Implants, Margins, Pediatrics | Login |
| Jul 22, 2025 | Fund Letters | Bob Mitchell | SLP | Simulations Plus, Inc. | Health Care | Life Sciences Tools & Services | Bear | NASDAQ | Demand, Drugdevelopment, Margins, restructuring, Software | Login |
| TICKER | COMMENTARY |
|---|---|
| DGII | DGII provides industrial IoT connectivity products, services, and software. The stock moved higher after the company reported record revenue and continued progress shifting toward a more recurring revenue-oriented business model. Annualized recurring revenue increased 50%, reinforcing management's expectation that higher-quality revenue will continue supporting margin expansion and earnings growth. |
| MRCY | MRCY provides mission-critical electronics and processing technologies for aerospace and defense applications. Results reinforced the view that the company's operational turnaround continues to gain traction as stronger orders translated into accelerating revenue growth and expanding margins. Record quarterly bookings of $348 million supported confidence that improved execution is beginning to convert into more consistent financial performance. |
| AAON | AAON was among the portfolio's strongest contributors during the quarter following what we believe was an exceptional first-quarter earnings report. Results highlighted significant demand for the company's BASX division, which provides liquid-cooling solutions for data centers. Management raised its 2026 BASX revenue outlook to approximately $1.0 billion, up from its previous forecast of $715 million, reflecting accelerating demand from AI-driven data center investments. The company's rooftop HVAC business also demonstrated a healthy rebound despite ongoing macroeconomic uncertainty. While gross margins declined during the quarter, management intentionally prioritized growth and market share over near-term profitability. We believe this is the appropriate strategy given the robust demand environment and should strengthen AAON's competitive position over the long term. |
| NOVT | NOVT provides precision technology solutions for medical and advanced industrial applications. The company reported improving demand across robotics, medical technologies, semiconductor equipment, and AI-related applications, prompting management to raise its revenue outlook. Bookings increased 37% year-over-year, reinforcing confidence that organic growth is broadening across the portfolio. |
| LMAT | LeMaitre Vascular delivered another strong fundamental quarter, reporting 10% organic revenue growth, gross margins of 72.1%, and adjusted EPS of $0.68, exceeding the consensus estimate of $0.66. Despite these solid operating results, the shares declined following the earnings release as investors took profits in one of the medical device sector's strongest performers. Prior to reporting first-quarter results on May 5, 2026, LMAT shares had appreciated approximately 38% year-to-date. We continue to believe the company is well positioned to generate attractive revenue and earnings growth over the coming years, supported by its differentiated vascular product portfolio and consistent execution. |
| SITE | SITE is a wholesale distributor of landscape supplies serving residential and commercial end markets. Shares came under pressure as softer demand in repair and maintenance projects offset continued margin improvement and solid operating execution. Organic daily sales declined 1%, reinforcing concerns that a more cautious spending environment could weigh on near-term revenue growth. Despite the near-term slowdown, we believe SITE remains well positioned to gain market share and benefit as demand across its end markets recovers. |
| BCPC | BCPC develops specialty ingredients for the nutrition, food, and healthcare markets. The stock underperformed despite another quarter of solid financial results as investors focused on the potential for higher costs associated with the war in the Gulf. While first quarter sales increased 8%, elevated expectations left little room for upside despite continued strong execution. The fundamentals supporting our investment thesis remain intact, led by BCPC's leadership in niche markets and long history of consistent execution. |
| DSGX | DSGX provides software solutions that help companies manage global logistics and supply chains. The stock declined despite another quarter of record revenue and earnings as investors looked past near-term strength and questioned the durability of growth following several quarters of exceptional performance. We remain encouraged by DSGX's mission-critical software, highly recurring revenue model, and disciplined capital allocation strategy, which continue to support our long-term investment thesis. |
| FSV | FSV provides residential property management and essential property services. Although the company delivered results largely in line with expectations, the stock weakened as higher interest rates pressured its home services business and management tempered near-term demand expectations. FSV's roofing segment also experienced continued cyclical softness. Over the longer term, we believe FSV's market-leading positions and disciplined acquisition strategy provide an attractive runway for continued growth. |
| KGS | KGS provides contract natural gas compression and distributed power solutions to energy infrastructure customers. We believe the company is well positioned to benefit from growing demand for natural gas infrastructure, LNG exports, and power generation supporting AI-related data center development. Long-term customer contracts, industry-leading fleet utilization, and expansion into distributed power provide multiple avenues for durable growth and cash flow generation. |
| MGY | MGY is an independent oil and natural gas producer focused on the Eagle Ford and Austin Chalk formations in South Texas. We initiated a position based on the company's disciplined operating model, attractive free cash flow generation, and consistent track record of capital allocation. Recent bolt-on acquisitions expanded its inventory of high-return drilling locations while preserving a low reinvestment rate and strong balance sheet. |
| MTDR | MTDR is an independent oil and natural gas producer focused on the Permian Basin. We believe the company is well positioned to generate attractive shareholder returns through disciplined capital allocation, production growth, and balance sheet strength despite a volatile commodity environment. Management continues to prioritize increasing production, reducing debt, and maintaining capital discipline, providing flexibility across a range of energy price scenarios. |
| KN | KN designs highly engineered components used in medical, defense, industrial, and electrification applications. We were attracted to the company's accelerating organic growth, expanding margins, and exposure to several attractive long-term secular trends. Management highlighted strong order activity across its Precision Devices business, with a sixth consecutive quarter of book-to-bill above 1.0x supporting confidence in continued growth. |
| PRM | PRM provides mission-critical fire safety and specialty chemical solutions. We initiated a position based on the company's durable earnings profile, disciplined capital allocation, and strong competitive position in niche markets. Recent long-term contract wins, including a five-year agreement with the Defense Logistics Agency, reinforce confidence in PRM's ability to generate predictable cash flow while continuing to expand its earnings base through both organic growth and acquisitions. |
| CWAN | CWAN provides cloud-based investment accounting, reporting, and analytics software for institutional investors. We sold the position following the company's acquisition by Thoma Bravo, which successfully monetized our investment thesis and provided an attractive exit. |
| BL | BL develops cloud software that automates financial close, accounting, and reconciliation processes. We sold the position as customer adoption of the company's platform strategy continued to develop more gradually than anticipated despite significant investments in AI-enabled products. While we remain positive on BL's competitive position, we believed its long-term growth profile had become less compelling. |
| CCCS | CCCS develops software that enables insurers and repair facilities to manage automotive claims and workflows. We exited the position as we became more selective within the software sector, favoring businesses with greater upside potential and fewer structural headwinds (reduced auto claims frequency). Although CCCS continued to execute well, we believed its prospective returns had become less compelling relative to other investment opportunities. |
| AZTA | AZTA provides sample management, cold-chain, and multiomics solutions for the life sciences industry. We sold the position after execution challenges, weaker life sciences funding, and continued softness in capital equipment demand led management to lower its full-year outlook. Although the company is implementing operational improvements, we believed the recovery would likely take longer than originally anticipated. |
| BMI | BMI manufactures smart water meters, and control solutions for utility and industrial customers. We exited the position after the company reported a decline in 1Q revenue and low visibility for a meaningful recovery. While BMI management believes there was no 'pull forward' of demand post pandemic, it appears increased activity in recent years may have created an air pocket of demand. |
| CXT | CXT provides authentication, detection, and traceability technologies for currency, consumer products, and industrial markets. We exited the position after the company completed several strategic acquisitions that expanded its addressable market but also increased integration and execution risk. With much of the near-term benefit reflected in management's outlook, we believed other opportunities offered a more attractive balance of risk and reward. |
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