John Leonard, CFA
Special situations, micro-cap, contrarian, CFA

Intelligent Systems Can Show Off Its High IQ By Focusing On The Core Business

Key takeaways

  • Intelligent Systems (NYSEMKT:INS) is ripe for activist involvement as persistently high R&D spending on the unprofitable IT segment is offsetting the "boring" yet profitable industrial products segment.
  • Moreover, this high spending is depressing cash flow and results in an inflated valuation, which discourages many value investors (and PE firms) who might be attracted to the otherwise positive fundamentals.
  • Furthermore, the internal tech incubator distracts management from focusing on the core business and should be gradually wound down while investments in early stage tech companies should be sold.

Company overview

INS operates through two segments:

The industrial products segment consists of the wholly-owned ChemFree subsidiary, which sells a line of SmartWasher parts washers and associated fluid/filter supplies...

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