| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 34% | - | -4.35% |
Smoak Capital returned -4.35% net in 1H 2026 versus the S&P 500's 10.2% gain, with underperformance driven by the manager's deliberate avoidance of AI-related stocks that powered most of the index's return. The manager views AI as in the too-hard pile and instead focuses on undervalued small-cap opportunities in South Korea and Japan. South Korea's comprehensive market reforms, including mandatory treasury share cancellation, expanded fiduciary duties, and high dividend tax incentives, are driving meaningful capital allocation improvements, though closing the Korea Discount will take years. Top performers included InBody, a Korean body composition device leader benefiting from GLP-1 adoption, trading at only 7.6x EV/2026e EBIT despite 86% YoY operating income growth, and QEPC, which was sold near fair value. Worst performers included Azeus Systems and PHI Group, though the manager remains comfortable holding both as undervalued with strong fundamentals. The fund has delivered 34% annualized returns since inception versus 15.3% for the S&P 500, turning $100,000 into over $1 million. The manager expects continued focus on undervalued small caps committed to capital allocation improvements.
Smoak Capital focuses on severely undervalued small-cap companies in South Korea and Japan that are committed to improving capital allocation, deliberately avoiding AI-related stocks despite their market dominance.
Manager expects continued focus on undervalued small-cap opportunities in South Korea and Japan, particularly companies committed to capital allocation improvements. While South Korea's market reforms will take years to close the Korea Discount, the manager believes looking for severely undervalued companies focused on improving capital allocation offers the most attractive opportunities. The manager remains confident that with patience, focus, and a process-oriented mindset, portfolio returns will continue to exceed the broader market over the long-term, despite near-term underperformance driven by avoiding AI-related stocks.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 4 2026 | 2026 Q2 | 041830.KQ, 3661.T | Asia, Capital Allocation, GLP1, Japan, Medical Devices, small caps, South Korea, value |
3661.T 041830.KQ |
Smoak Capital lost 4.35% in 1H 2026, lagging the S&P 500's 10.2% as AI stocks dominated. The manager deliberately avoids AI, focusing instead on severely undervalued Korean and Japanese small caps improving capital allocation. InBody, a GLP-1 beneficiary trading at 7.6x earnings despite 86% profit growth, led gains. Since inception, the fund has compounded at 34% annually versus 15.3% for the index. |
| Feb 16 2026 | 2025 Q4 | 4441.T, DR.TO | cybersecurity, Defensive, growth, Japan, small caps, value |
4441 JP DR CN |
Smoak Capital's value-focused approach targets undervalued small-caps with growth potential, particularly in international markets. Despite underperforming in 2025 due to defensive positioning and minimal AI exposure, the fund has delivered exceptional long-term returns of 37.4% annualized since 2018. Key holdings like Tobila Systems demonstrate the strategy of finding mispriced growth companies trading at deep discounts. |
| Aug 15 2025 | 2025 Q2 | FILA.MI, IGR.L | capital efficiency, global, Japan, small caps, Trade Policy, value |
IGR LN FILA.MI IGR.L |
Smoak Capital outperformed with 10.6% net returns in H1 2025, driven by strong performance from Azeus. The manager is pivoting toward non-US markets, particularly Japan, where capital efficiency reforms are creating value opportunities. Trade policy uncertainty and valuation differences support this geographic shift. The value-focused approach continues targeting undervalued small-cap companies globally. |
| Feb 10 2025 | 2024 Q4 | FILA.MI, HD, NWL, QEPC, SWK | brands, consumer, M&A, small caps, Tools, turnaround, value |
FILA.MI QEPC |
Smoak Capital returned 32.4% in 2024 by targeting undervalued small companies experiencing transformational changes. Key holdings FILA and QEP trade at deep discounts to intrinsic value following corporate restructurings that improved underlying business quality. The strategy exploits pricing inefficiencies in underfollowed names where significant changes take time to be recognized by the broader market. |
| Jul 30 2024 | 2024 Q2 | LNF.TO | Canada, Capital Allocation, real estate, small caps, spinoffs, value | LNF.TO | Smoak Capital delivered 24.0% net returns in H1 2024, outperforming the S&P 500 by 870 basis points. Strong performance from FitLife, Azeus, and Medical Facilities drove results. New position Leon's Furniture offers compelling value at 11x earnings with hidden real estate worth potentially the entire market cap, catalyzed by planned REIT spinoff. |
| Jan 28 2024 | 2023 Q4 | FTLF, GWOX, HMM-A.TO | Banking, Education, Fitness, Manufacturing, small caps, value |
FTLF GWOX |
Smoak Capital targets undervalued small-caps trading under 10x earnings, leveraging size advantages to access underfollowed opportunities. Despite 2023's 14.9% return trailing the S&P 500 due to late-year macro divergence, the fund maintains strong conviction in holdings like Hammond Manufacturing at 5x earnings and Goodheart-Willcox at 3x FCF, expecting superior long-term returns versus expensive mega-caps. |
| Jul 30 2023 | 2023 Q2 | ASML, BWXT, CHTR, CMCSA, CRM, MA, META, MU, NOW, NVDA, V | AI, Enterprise Software, growth, nuclear, semiconductors, technology, Trade Policy | - | Despite strong 19% revenue and 21% EPS growth, the portfolio lagged in Q3 as AI concerns weighed on enterprise software holdings. Manager believes Trump's pro-growth policies create favorable environment for high-quality companies. Sold cable exposure due to subscriber weakness, added memory play Micron for AI data center demand. Nuclear power benefiting from AI-driven electricity needs. |
| Dec 31 2022 | 2022 Q4 | - | - | - | |
| Dec 31 2021 | 2021 Q4 | - | - | - | |
| Dec 31 2020 | 2020 Q4 | - | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
South KoreaManager is focused on undervalued small-cap Korean names committed to capital allocation improvements, outside AI-related industries. South Korea's comprehensive market reforms include mandatory treasury share cancellation, expanded fiduciary duties, cumulative voting rights, and high dividend tax incentives. These Value-Up reforms are modeled after Japan's efforts but are more comprehensive, though closing the Korea Discount will take years of continued commitment. |
Korea Discount Value-Up Capital allocation Market reforms Small caps |
GLP1InBody is positioned as a clear GLP-1 beneficiary, with management citing increasing demand alongside growing GLP-1 adoption, primarily in the US. GLP-1s lead to muscle loss along with fat loss, making body composition tracking valuable. Pharma companies are investing heavily in muscle-preservation drugs, which would require routine lean mass monitoring at follow-up visits, creating sustained demand for InBody's devices. |
Weight loss Muscle preservation Body composition Medical devices | |
AIManager explicitly avoids AI-related stocks, stating this remains in the too-hard pile and has contributed to underperformance versus broader indices. While acknowledging AI as incredible technology, the manager questions where economic value will flow. The manager is unconcerned about AI disruption fears affecting portfolio holdings like Azeus Systems and M-up Holdings, viewing these companies as structurally different from vulnerable enterprise SaaS platforms. |
Disruption Valuation Software Hyperscalers | |
Capital allocationManager is actively seeking companies focused on improving capital allocation matched with severe undervaluation, particularly in South Korea and Japan. South Korea's reforms around mandatory treasury share cancellation, expanded fiduciary duties, and high dividend tax incentives are driving meaningful changes. The manager highlights companies like M-up Holdings consistently repurchasing shares and increasing dividends, with shareholder yield of 3-4%. |
Buybacks Dividends Shareholder returns Value-Up | |
Small CapsManager is focused on undervalued small-cap names in South Korea and Japan that are ignored by the market. InBody was absurdly cheap at EV/EBIT of 5 or less, mostly due to being a small-cap KOSDAQ company with very little public research or investor awareness. The manager sees these overlooked small caps as offering material undervaluation opportunities, particularly those outside AI-related industries. |
KOSDAQ Undervalued Ignored Mispriced | |
Medical DevicesInBody is the global leader in bioelectrical impedance body composition measurement devices, with strong long-term growth of approximately 15% revenue CAGR over the past 10 years. The company's devices show 98% correlation with DEXA scans but are vastly more practical, costing 10x less, taking under 60 seconds versus 30 minutes, and avoiding radiation exposure. Growing demand stems from superiority over BMI metrics and increasing consumer demand for relevant biometric data. |
Body composition BIA DEXA Biometrics | |
JapanManager sees Japan presenting many undervalued opportunities, with growth stocks selling off considerably lately. M-up Holdings is highlighted as a dominant fan club operator in Japan with 25% revenue CAGR and 40% operating income CAGR since FY22. The manager references Japan's market reform efforts, which South Korea is modeling its own reforms after, suggesting a rising tide may eventually lift all boats as momentum builds. |
Tokyo Stock Exchange Undervalued Market reforms Growth stocks | |
| 2025 Q4 |
CybersecurityCybersecurity companies are using AI in core algorithms to better identify anomalies and block malicious traffic. CrowdStrike is seeing reacceleration in growth with new Falcon Flex offering, while Netskope continues gaining SASE market share with strong competitive win rates. |
Security AI Detection Enterprise Cloud Protection |
JapanJapan offers tremendous value opportunities with one-third of companies trading below book value. Corporate governance reforms, record shareholder returns, and structural changes like unwinding cross-holdings are unlocking value. The investment opportunity is in early innings and could last several years. |
Corporate Governance Value Reforms Shareholder Returns Cross Holdings | |
ValueManager emphasizes investing in controlled companies trading at significant discounts to NAV, with European holding companies showing discounts of 30-68%. The strategy focuses on securities mispricing where real value exists, contrasting with overvalued technology stocks. |
Discounts NAV Mispricing Undervalued Controlled | |
| 2025 Q2 |
JapanCapital efficiency reforms and policies have continued to build momentum in Japan. Buybacks have more than doubled since 2022 and dividends are up over 70%. M&A has also picked up considerably. The manager is eager to continue researching small Japanese companies leading the way in capital efficiency improvements. |
Capital Efficiency Buybacks Dividends M&A Valuation |
Trade PolicyUnpredictable trade policy most likely contributed to capital flows shifting to Non-US countries and US dollar weakness. Tariff uncertainty created volatility and put extreme pressure on supply chains, particularly affecting companies with US operations. |
Tariffs Supply Chain Dollar Volatility Capital Flows | |
ValueThe manager is focused on finding undervalued opportunities, particularly given valuation differences between US and non-US markets. Several positions are described as trading at attractive valuations relative to their fundamentals. |
Undervalued Valuation Opportunity Fundamentals Mispriced | |
| 2024 Q4 |
ValueManager focuses on undervalued companies trading below intrinsic value, particularly small and underfollowed companies where significant changes create pricing inefficiencies. FILA trades at only 3.2x core EBITDA when assigning reasonable valuation to DOMS subsidiary. QEP trades at 4.5x EV/EBIT despite improved operations after divestitures. |
Undervalued Intrinsic Value Mispricing Deep Value Discount |
Small CapsStrategy explicitly targets small and underfollowed companies where significant changes are not quickly priced in by the market. Manager believes analysts and investors following larger companies price in changes much quicker, creating opportunities in smaller names. Two largest holdings fit this pattern of small companies experiencing transformational changes. |
Small Companies Underfollowed Inefficiency Mispricing Opportunity | |
ToolsQEP designs, manufactures, and distributes flooring installation tools with brands including QEP, Roberts, and Capitol. The tools business has strong underlying profitability with operating margins rising from 3% to over 10% after divesting underperforming floor covering operations. Hand and Power Tools industry has historical M&A activity with brands holding lasting value. |
Flooring Tools Installation Manufacturing Brands Profitability | |
| 2024 Q2 |
ValueManager focuses on finding stocks trading at significant discounts to fair value, citing Leon's Furniture at 11x earnings with substantial hidden real estate value. Emphasizes situations where businesses are widely misunderstood or overlooked by investors. |
Discount Undervalued Hidden Value Mispriced Fair Value |
Real EstateLeon's Furniture owns 5.6M sq ft of retail and industrial real estate held at cost, plus 40 acres near Toronto for residential development. Manager sees substantial value creation through REIT spinoff similar to Canadian Tire and Loblaws strategies. |
REIT Property Development Spinoff Unlock | |
| 2023 Q4 |
ValueThe fund focuses on finding good businesses trading at less than 10 times earnings, with holdings like Hammond Manufacturing at 5x earnings and Goodheart-Willcox at 3x EV/FCF. The manager believes these valuations provide significant upside potential compared to highly valued market segments. |
Value Earnings Discount Undervalued Cheap |
Small CapsThe fund's competitive advantage is its relatively small amount of capital and limited constraints, allowing it to venture into underfollowed and obscure opportunities. The portfolio consists of smaller, less liquid names that don't react as quickly to macro news as larger, more efficient markets. |
Small Caps Underfollowed Illiquid Obscure Niche | |
Data CentersHammond Manufacturing benefits from secular trends in cloud computing, infrastructure investment, and data center growth. Their racks and cabinets product category directly benefits from continuous growth in data center investments and cloud computing demand. |
Data Centers Cloud Infrastructure Racks Computing | |
| 2023 Q2 |
AIManager discusses the debate over whether AI will drive increased adoption of enterprise software or allow companies to bypass vendors with internal solutions. Believes platform companies like ServiceNow and Salesforce will be critical AI partners despite market skepticism. AI data center demand has added massive structural component to high bandwidth memory demand. |
Enterprise Software Data Centers Productivity Innovation Automation |
SemiconductorsASML maintains monopoly in highest-end lithography equipment essential for making semiconductors. EUV machines critical for high-end chips required for AI. Micron positioned to gain share in high bandwidth memory market with Vera Rubin launch. Memory market experiencing structural demand from AI data centers. |
Memory Lithography Foundries Equipment Cyclicality | |
NuclearBWX Technologies benefiting from massive growth in nuclear-related backlog, up 70% year-over-year. Nuclear power essential for meeting AI data center power demands and maintaining energy leadership. Trump administration taking all-of-the-above energy approach requiring nuclear as part of solution for 100 gigawatts of additional capacity needed. |
Power Generation Energy Infrastructure Backlog Small Modular Reactors Waste Storage | |
Trade PolicyTrump administration has rewritten international trade terms favoring US domestic production through tariffs implemented between April and September 2025. Tariffs have yet to materially impact consumer prices and have been absorbed in supply chain. Outstanding US-China trade deal remains unresolved with Nvidia caught in middle. |
Tariffs Manufacturing Supply Chain Geopolitical Investment |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Aug 4, 2026 | Fund Letters | Smoak Capital Management | 3661.T | M-up Holdings | Other | Interactive Media & Services | Bull | - | capital allocation, digital platform, e-commerce, E-ticketing, entertainment, Equity, Fan club operator, high-ROIC, Japan, net cash, Share Buybacks, Two-Sided Marketplace, Value | Login |
| Aug 4, 2026 | Fund Letters | Smoak Capital Management | 041830.KQ | InBody | Other | Health Care Equipment | Bull | - | BIA technology, Body composition, Data Moat, Direct sales model, Equity, Geographic Expansion, GLP-1 beneficiary, growth, Healthcare Equipment, Medical devices, net cash, operating leverage, South Korea | Login |
| Feb 16, 2026 | Fund Letters | Daniel Smoak | 4441 JP | Tobila Systems Inc. | Information Technology | Application Software | Bull | New York Stock Exchange | Fraud prevention, Free Cash Flow, Japan, Ltv/Cac, SaaS, undervalued | Login |
| Feb 16, 2026 | Fund Letters | Daniel Smoak | DR CN | Medical Facilities Corporation | Health Care | Health Care Facilities | Bull | New York Stock Exchange | asset sales, buybacks, Hospitals, shareholder yield, undervalued | Login |
| Aug 15, 2025 | Fund Letters | Daniel Smoak | IGR LN | IG Design Group plc | Consumer Discretionary | Commercial Services & Supplies | Bull | New York Stock Exchange | deep value, Gift Packaging, Liquidation, net cash, restructuring, turnaround | Login |
| Dec 31, 2024 | Fund Letters | Smoak Capital Management | FILA.MI | F.I.L.A. S.p.a. | Consumer Discretionary | Leisure Products | Bull | Borsa Italiana | art supplies, brand portfolio, debt reduction, dividend, EBITDA multiple, India, Italy, market leader, spin-off, stationery, Sum-of-parts, undervalued, Value | Login |
| Dec 31, 2024 | Fund Letters | Smoak Capital Management | QEPC | QEP Co., Inc. | Industrials | Industrial Machinery | Bull | OTCQX | capital allocation, Customer concentration, divestiture, dividend, Flooring, Home Depot, M&A Target, Management Change, margin expansion, Tools, turnaround, Value | Login |
| Jul 1, 2024 | Fund Letters | Smoak Capital Management | LNF.TO | Leon's Furniture | Consumer Discretionary | Home Furnishing Retail | Bull | TSX | Asset-Heavy, Canada, furniture retailer, Hidden-Assets, market leader, Real Estate, REIT Spinoff, Residential Development, Toronto, value unlock | Login |
| Dec 31, 2023 | Fund Letters | Smoak Capital Management | FTLF | FitLife Brands | Consumer Staples | Personal Products | Bull | NASDAQ | Acquisitions, Amazon, capital allocation, Distressed assets, e-commerce, EBITDA growth, Nutritional Supplements, Protein Products, turnaround, Wholesale Distribution | Login |
| Dec 31, 2023 | Fund Letters | Smoak Capital Management | - | Hammond Manufacturing | Industrials | Electrical Equipment | Bull | TSX | Canada, Cloud computing, data centers, electrical equipment, Electrification, infrastructure, manufacturing, Peer Comparison, real estate value, secular tailwinds | Login |
| Dec 31, 2023 | Fund Letters | Smoak Capital Management | GWOX | Goodheart-Willcox | Communication Services | Publishing | Bull | OTC | Career Technical Education, cash generation, Digital transformation, Edtech, Educational Publishing, GAAP Distortion, high margins, Niche markets, Pandemic Beneficiary, subscription revenue | Login |
| - | Fund Letters | Smoak Capital Management | FILA.MI | F.I.L.A. S.p.a. | Consumer Discretionary | Leisure Products | Bull | Borsa Italiana | Art Materials, Consumer Discretionary, dividend, Italy, manufacturing, stationery, strategic stake, Value | Login |
| - | Fund Letters | Smoak Capital Management | IGR.L | IG Design Group | Consumer Discretionary | Leisure Products | Neutral | London Stock Exchange | Consumer Discretionary, Corporate Governance, Craft Supplies, Gift Packaging, Liquidation, net cash, turnaround, UK | Login |
| TICKER | COMMENTARY |
|---|---|
| 3661.T | M-up Holdings (JP:3661) is the dominant fan club operator in Japan. They work with artists, entertainers, and other Japanese idols to establish and grow their fan clubs and importantly establish and grow e-commerce sales and e-ticket sales. Their scale, focus, and expertise enable them to grow fan clubs, promote fan interaction and loyalty, and add substantial value to artists better than their competitors. Since FY22, M-up has grown revenue at a 25% CAGR and operating income at a 40% CAGR. M-up's stated long-term goal is to grow operating income at least 20% per year. M-up has exhibited very strong operating leverage over this time period due to two primary factors: SG&A growing less than revenue and growing their smaller but higher-margin revenue streams (e-ticketing and e-commerce). Despite this very impressive growth and track record, M-up's shares have been almost cut in half over the past year. I believe this decline is related to 1) M-up being categorized as a software company and therefore seen as an AI disruption target and 2) because M-up withheld FY27 earnings guidance when reporting FY26 results while many Japanese entertainment peers were forecasting business headwinds or revenue declines. Guidance for FY27, of Revenue and EBIT growth of 13.5% and 16% respectively, was released later but the share price damage had already been done. Because of this decline, the current valuation seems completely disconnected from the business (and its quality) with shares trading at 9x EV/FCF and 7.8x EV/FwdFCF. M-up is structurally very different from an enterprise or even Consumer SaaS type company. The key to their business from the beginning has been connecting and forming strong relationships with artists. As part of this relationship, M-up shares a substantial portion (50% or more) of fan club revenues with the artists. And since M-up has the most artists and has been managing digital fan clubs the longest, they have substantial expertise for what works best for different types of artists, genres, fanbases, etc. creating the most economic value from the fan club for themselves and the artist. This also means artists can simply offload this capability to M-up and reap most of the rewards. Impressively, M-up states it has only ever lost an artist once. I think it is very unlikely AI causes disruption to M-up due to their accumulated knowledge and expertise, industry and artist relationships, and track record. M-up was founded by Koichiro Mito, who has deep roots in the Japanese music industry and a strong understanding of Japanese idol culture. Mito spent over a decade with Victor Music and Toshiba EMI (mid 1980s-late 1990s) culminating in a close relationship with hide, one of the most iconic and influential Japanese guitarists of all time. Mito and hide held common views on how the internet would change music forever. hide tragically died in 1998 at the peak of his success and some years later Mito made a bold career pivot founding M-up as a startup focused on music and artist/fan connections. He was able to leverage his knowledge, relationships, and expertise to successfully grow M-up and eventually IPO'd on the Tokyo Stock Exchange in 2012. I believe Mito's background and deep understanding of artists, fans, and culture has been a driving force behind M-up's success. M-up entered the electronic ticketing business by acquiring EMTG in late 2018. The combination of M-up's existing fan club platform with electronic ticketing services was an immediate success with clear synergies and increased competitive advantages. While the COVID-19 pandemic in 2020 presented short-term challenges, it also prompted M-up to aggressively pivot into e-commerce and more digital content. This pivot was met with surging demand and led to a third fast growing revenue stream. With these three pillars, M-up is a defensible two-sided marketplace, creating massive value for both fans and artists. M-up rarely loses an artist and annual churn of fan club members is below 1%. M-up utilizes its extensive industry connections and grassroots sales activities (visiting live houses and other events) to connect with artists. Once they establish a connection with an artist, the cost to acquire fan club members is very minimal. M-up has over ¥20 billion in cash and long-term investments vs. a ¥56 billion market cap. I've cut the net cash and investments by about 25% in my EV calc as cash is received up front from fan club subscriptions but a portion is due to artists shortly thereafter. Given they receive cash up front for the majority of their revenues through recurring subscriptions, I believe FCF is the better metric for economic earnings provided you adjust change in deferred revenues and cash balances for the portion due to artists. ROE is over 30% although true ROIC is much higher, as this is a very capital light and profitable business. M-up has also been consistently repurchasing shares over the past two years as well as increasing their dividend. Shareholder yield is likely 3-4% right now between the two but hopefully buybacks increase going forward as cash builds up and with the stock depressed. There is also an accounting quirk in M-up's reported financials I think is important to mention. When M-up signs a new artist or re-launches an old artist's fan club, they incur a material amount of development costs (around 6% of COGS per discussions with management). Since we know annual churn of fan club members is low, under 1% annually, and they rarely ever lose artists, that means the economic life and therefore development costs of the fan club website, app, and related ecosystem have quite a long economic life as well. M-up pays third parties for this development work via revenue-sharing agreements, therefore all the website development work (which I would strongly argue is growth capex) is being expensed through COGS when the fan club begins generating revenue. Depending on the duration of these agreements, FCF before growth capex could be substantially higher. Alternatively, you can know this quirk is perpetually causing them to underearn whenever developing new fan clubs and that future earnings will be materially higher when the revenue share rolls off. In summary, I believe M-up's very strong competitive position, efficient operating model, and impressive track record are being ignored by the market. Growth stocks in general in Japan have sold off considerably lately with more extreme declines seen in those perceived to be exposed to AI. I'm not sure if AI-related fears are specifically contributing to the decline, but I'm quite confident M-up is not threatened due to their extensive IP through their artist relationships. M-up's shares are priced as if growth will completely stop, which I believe is unlikely. As long as M-up can continue growing artists, grow fan club members, and layer on e-commerce and e-ticketing their business and profits will keep expanding. Given M-up's extremely favorable economics, competitive position, and consistent strong growth, I believe shares are materially undervalued at only 7.8x EV/fwdFCF. |
| 041830.KQ | InBody is a category creator and global leader in body composition measurement devices. InBody's primary customer markets are hospitals, clinics, and fitness centers and its extremely impressive long-term growth (~15% Revenue CAGR over the past 10 years) has come from geographic expansion outside of South Korea, with its two biggest markets today being the US and Europe. Q1 2026 figures were especially strong, with North America accelerating to 32% YoY growth and Europe to 41% YoY. Operating Income was even more impressive, up 86% YoY, albeit against an easier YoY comparable. The company also began citing GLP-1 adoption as a key driver of this growth acceleration. This makes sense, as it is well documented that GLP-1s can lead to muscle loss along with fat loss, and patients and providers looking to maintain muscle mass or track progress likely find InBody's devices very useful. The underlying reason for such strong operating profit growth is that operating margins have been temporarily suppressed from InBody's deliberate decision to transition from a distributor model to direct sales in their biggest markets (led by the US). This caused operating margins to contract from FY22 to FY25, even amidst strong revenue growth. Now that this overseas SG&A buildout is largely complete, further revenue growth will likely keep driving operating margins back towards their prior levels, mid-to-high 20s, or perhaps even higher as gross margins are higher than ever. This setup is attractive because both driving factors are clear: revenue growth should remain strong or accelerate, and growth should now translate into outsized profits with the direct-sales investment cycle largely complete. Despite this, shares trade at only 7.6x EV/2026e EBIT vs. many GLP-1 picks-and-shovels plays at 15-30x or diagnostic medical devices at 15-25x. InBody also has roughly one third of its market cap in net cash, providing substantial downside protection. Importantly, many of these GLP-1 comps are levered to a single delivery format: injectable pens and their component suppliers, for instance, face real risk as oral formulations advance. InBody is agnostic not just to delivery method but to drug class and to which manufacturer ultimately wins, since lean mass loss accompanies weight loss regardless of how it is achieved. It's also important to note InBody devices are not the top-tier gold standard in the body composition market; that title likely belongs to DEXA scans. But InBody scans are vastly more practical than DEXA scans and according to a 2020 Mayo Clinic study, InBody scans showed a 98% correlation with DEXA results. The drawbacks of DEXA scans are considerable: DEXA equipment is very expensive vs. InBody (10x the equipment cost and much more expensive per scan), DEXA includes low dose radiation exposure and requires licensed radiology staff in many states, takes up to 30 minutes per scan vs under 60 seconds for InBody, and there are significant physical limitations of DEXA for obese patients, taller patients, or otherwise unique body types. Pharmaceutical companies are also investing heavily in muscle-preservation drugs, as trials have confirmed that roughly a third of GLP-1-induced weight loss is lean mass. If these muscle-preservation drugs reach the market, clinicians will need to track lean mass at routine follow-up visits (not something that happens on a machine costing 10x as much and taking 30 minutes per scan). Pharma is funding the establishment of body composition as a therapeutic target, and InBody is positioned to capture the resulting monitoring volume. InBody has also quietly accumulated one of the world's largest body composition datasets (176 million records as of May 2025) and monetizes it through population benchmarking in LookinBody Web, its cloud platform. Many competitors rely on population-based estimation to fill in metrics their hardware doesn't directly measure, which I suspect also masks less capable technology; InBody reports only what it measures. This accumulated data therefore doesn't improve any individual measurement. What it does create is switching costs at the account level. Once a clinic has years of patient body composition history, moving to a competing device would produce different absolute values and break the continuity of that record entirely. While GLP-1s are a strong use case, InBody's long-term growth certainly points to a more consistent, growing global demand profile. I think this likely stems from vast superiority of body composition scans over traditionally used BMI metrics, as well as consumers' and providers' increasing demand for more relevant biometric data points. As patients and consumers, we are more connected than ever through wearables, health tracking data, sleep tracking, etc. I believe body composition scans are a very useful datapoint in that overall picture, and for that reason will likely continue to become more prevalent. As you can see in the Google Trends graph below, search interest over time for InBody scans has grown consistently with a noticeable increase in the second half of 2025 and first half of 2026. This aligns with other search interest trends around GLP-1 data as well as the company's own disclosures. While shares traded sharply higher after their Q1 results, it's important to note how absurdly cheap the stock was (EV/EBIT of 5 or less), mostly due to being a small-cap KOSDAQ company with very little public research or investor awareness. Q1 results and the growing GLP-1 demand potential, coupled with significant untapped operating leverage, suggest shares are at a legitimate inflection for future revenue and earnings growth. For these reasons, I believe InBody shares are materially undervalued at only 7.6x EV/2026e EBIT, with a long growth runway ahead. |
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