We open with this story because it’s the clearest possible illustration of what’s happened to warfare in the last four years, and why we think this space is worth looking at. Drones have gone from a niche surveillance tool to arguably the defining weapon system of this decade. The shift happened fast: both sides in Ukraine have built entire drone-industrial bases from scratch since 2022, and last year an estimated 4.5 million drones were produced in Ukraine alone, more than 2 million of which were FPV drones. The math behind this is simple – a $500 drone can now destroy a $10 million tank, and Russia is reportedly losing on the order of 30,000 soldiers a month to a threat that, five years ago, most Western militaries didn’t even have a doctrine for.

Every government watching this is drawing the same conclusion: they are nowhere near ready. NATO defense budgets are rising across the board, and a meaningful chunk of the new spending is going specifically into counter-drone capability, because generals have watched their own exercises go the way of Combined Resolve. This creates a structural, multi-year tailwind, and big chunk of the market is being captured by a handful of small, agile firms rather than the legacy primes.

That’s the setup we love: urgent demand, growing market, ample funding, incumbents too slow to move – met by companies barely a year past IPO with almost no analyst coverage. Under-followed, solving a problem armies are desperate to fix, early in a multi-year cycle. Hard to find something more asymmetric than that.

We’ve done a lot of deep research going through this space and talking to management teams. These are our top 3 ideas.

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1. Smart Shooter

Ticker: $SMSH.TA

While we were writing this, the U.S. Air Force published a notice of intent to award Smart Shooter a sole-source contract at Spangdahlem Air Base in Germany – no tender was run, because, in the Air Force’s own words, “Smart Shooter, Inc. is the only source that can provide such fire control systems.” That single sentence, buried in a government procurement filing nobody outside this niche will ever read, is basically the whole investment case in one line. This is a small, recently-IPO’d drone-defense company that the U.S. military has decided has no substitute. Moreover, the business is capital-light, high-margin and at an important inflection point.

What do they do?

Smart Shooter makes a lightweight camera-and-computer sight, called SMASH, that clips onto an ordinary rifle and turns an average soldier into someone who can reliably shoot down a small attack drone. The company was founded by two ex-Rafael engineers: CEO Michal Mor and CTO Avshalom Ehrlich, who worked together at Israel’s top missile-defense prime before striking out on their own. The pitch to soldiers is simple: the sight’s computer vision detects a moving target, tracks it, calculates where it will be by the time a bullet arrives, and shows the soldier exactly where to aim. Then comes the part that actually makes this a business rather than a slightly-better red-dot sight: the trigger itself is computer-controlled. The soldier pulls it, but a pin physically blocks the firing pin from releasing until the system’s algorithm confirms the barrel is passing through the calculated hit zone. The human decides to shoot; the computer decides exactly when. NATO puts the resulting hit probability at roughly 95% per shot (at a static target – it is less with a moving drone, we have tested this ourselves), against a baseline where even trained marksmen are lucky to hit a small, erratically-moving drone one time in five.

The company sells two product families built on the same core technology. The handheld SMASH line (the 2000L, 3000, and X4 models) runs $8,000–$13,000 per unit depending on configuration and mounts directly on a soldier’s personal weapon (see below).

The second line, Hopper, is a remote-controlled weapon station – think a small robotic turret that can hold anything from a rifle up to a machine gun, operated from cover or fully unmanned, priced around 10–12x the handheld unit. Both share the same detect-lock-track-fire brain, which is why management keeps describing the whole thing less as “a gun sight” and more as a platform – the iPhone-and-iPad analogy came up more than once when we spoke with them.

“We could 5x the price and armies would still buy it”

The obvious question with any defense-tech story is whether the technology is actually defensible, or whether a better-funded competitor just builds the same thing next year. We spent a lot of time on this, because on paper the pieces (computer vision, ballistic calculation, target tracking) aren’t unique; plenty of companies can build a camera that locks onto a drone. What nobody else has replicated is the closed-loop trigger release: an algorithm that owns the actual decision of when the weapon fires, at this price point, at this weight, proven across a decade of real combat deployment. That last part is important – SMASH is the accumulated product of years of field data from the IDF and other militaries tuning the system against real, chaotic combat conditions. As management told us:

"Nobody has caught up yet, and every day that passes without a credible competitor makes the gap harder to close, because armies that have already trained tens of thousands of soldiers on the system aren’t eager to retrain them on someone else’s box.”

That lock-in shows up in who's buying, too. Smart Shooter now sells to all four branches of the U.S. military – Army, Marines, Air Force, and, as of a first contract in June, the Navy. The Army has already fielded SMASH within its "Transformation in Contact" modernization program, meaning this has moved past special-forces pilots and into standard infantry units. And SMASH integrates directly with TAK, the battle-management network the U.S. military actually runs on. Wiring sensor data directly into TAK creates a heavy software footprint that makes replacement difficult (it’s not just a simple purchasing decision anymore).

Then there’s the demand side of the moat, which is really a cost argument. A NATO 5.56mm round costs about 40 cents. So the cost to bring down a drone is less than a few dollars. Compare that to the alternatives being pitched for the same job: Anduril’s Roadrunner interceptor drone runs about $250,000 a unit, its cheaper Anvil quadcopter still costs roughly $50,000, and Fortem’s DroneHunter goes for around $150,000. Even a basic laser or microwave counter-drone system requires enormous upfront capital investment before it fires a single shot. Armies that are watching thousands of $500 attack drones come at them don’t want to answer every one with a six-figure interceptor – SMASH gives them a cheap add-on that turns the rifle every soldier already carries into a credible defense. That is why the CEO told us (only half-joking, we think): “we could 5x the price and armies would still buy it.”

The market is exactly at the inflection point

Every new defense technology follows roughly the same adoption curve: an army buys a handful of units to test, spends a year or two running them in the field, and only once it trusts the technology does it place the order that actually moves the needle. Smart Shooter's first contracts, a few years back, were worth $1–3 million each, and smaller orders still come through regularly. What's changed is that customers who already tested and trust the system are increasingly moving toward much larger follow-on orders: management told us they're currently negotiating contracts exceeding $10 million, representing thousands of units, with deals in the pipeline potentially scaling to $10–20 million for 1,000–2,000 systems at a time. This shift is one of the most important learnings – the institutional work of convincing generals that kinetic, rifle-based counter-drone actually works has already been done over the last several years. The main focus is no longer the development of the product itself, but rather its rapid commercialization and global scaling.

You can see the inflection directly in the numbers: as of the company’s most recent quarterly update, the order backlog stood at $49 million, up 67% year-over-year, and new order intake was up nearly 400% year-over-year over the same stretch. Actually, the company can barely keep pace with the demand it already has. Management has said outright they have effectively no finished inventory sitting on the shelf and are now racing to build a buffer.

And the customer list keeps getting more serious. Smart Shooter has been designated an approved supplier under JIATF-401, the U.S. Department of Defense’s emergency procurement channel – the kind of classification that turns a multi-year sales cycle into a matter of weeks when a unit needs equipment now, not after the next budget cycle. The U.S. Army placed a $10.7 million follow-on order in May. The U.S. Marine Corps signed a $5.8 million contract in June. Israel’s own Ministry of Defense placed a fresh order for the Hopper line in May, driven in no small part by the same fiber-optic drones Hezbollah has increasingly deployed along Israel’s northern border – drones that are immune to the jamming and electronic-warfare defenses everyone spent the last decade building, because they’re tethered to their operator by cable instead of radio. That’s exactly the threat SMASH is built for: when jamming stops working, you need something that physically knocks the thing out of the sky, and right now Smart Shooter is one of the only companies anyone trusts to do that at rifle range. And then, this month, the Spangdahlem sole-source notice – the U.S. Air Force in Germany telling its own procurement system there’s no point running a competition because there’s no one else to compete.

Hopper could become half the business

The SMASH sight is the main product today, but Hopper is what convinced us this could be a much bigger story. Management pulled the original Hopper from the market a while back, spent time improving it, and only started actively selling it again at the start of 2026 – so essentially all of Smart Shooter’s revenue today is still the handheld sight. Management is unusually bullish on where this goes: in the medium term, they believe Hopper could account for at least half of company revenue.

The core use case is protecting military bases, borders, and critical infrastructure, and the unit doesn’t have to work alone. It can take a cue from a radar or another external sensor that spots a drone at a distance, pre-align itself toward the threat’s direction, and then lock on and try to shoot it down once the drone enters its own range. A single operator can also run several Hoppers at once, deployed around a base or along a stretch of border, which matters a lot in practice, since it means you don’t need a soldier physically posted at every position around the clock. The entire unit weighs less than roughly 20 kg, so it’s easy enough to move around, and it’s a fairly low-cost solution compared to many other counter-drone systems on the market.

On the commercial side, management told us they’re currently negotiating orders for tens of Hopper units, with future orders potentially reaching the hundreds. We’d also point to India here: the CEO had just returned from a trip there around the time we spoke, and India has already ordered Hoppers to help protect its border with Pakistan. None of that guarantees Hopper scales the way management expects, but it’s an interesting order-momentum signal.

90% Revenue Growth & Strong Operational Leverage

Full-year 2025 revenue came in at $36.8 million, up 50% year-over-year, with a 54% gross margin and $6 million in net income. It’s a real, profitable business, not a cash-burning story stock. The first quarter of 2026 looked softer on the surface (revenue up “only” 25%), but that’s because of order timing, not demand: per the CFO, most of this year’s deliveries are scheduled for the back half, which should be expected from a company converting a backlog that’s growing far faster than revenue is being recognized. The balance sheet backs this up nicely: $81.7 million in cash (most of it raised in the company’s March 2026 IPO) and zero debt.

We built our own model to size 2026 more precisely, and it points meaningfully higher than a simple extrapolation of last year’s growth rate. Add up the $6.6 million booked in Q1, roughly $3 million we estimate landed between the end of Q1 and the company’s May 20 update, the ~$40 million of 2026-dated backlog disclosed as of that date, and about $6.8 million of new orders booked since – and you already get to $56.4 million of 2026 revenue that’s effectively locked in. Assuming that roughly half of the ~$7.8 million in known contract options outstanding (from the U.S. Army, the Marine Corps, and Israel’s Ministry of Defense) get exercised this year, and visible 2026 revenue is already north of $60 million before a single new order shows up.

Given how fast bookings have accelerated all year, we think $70 million for 2026 (call it +90% year-over-year) is a reasonable working number, with $100 million for 2027 (+43%) achievable if order momentum holds.

What we find more interesting than the top line is what happens underneath it, because the business is starting to show very promising operating leverage. On our numbers, EBIT grows from $6.1 million in 2025 to roughly $22 million in 2026 (a 31.6% margin) and $35 million in 2027 (34.5%), with net income following a similar curve, from $6 million to about $17 million and then $27 million. That’s the kind of operating leverage you’d hope for out of a ~55% gross margin hardware business, once the cost base – we’re assuming sales & marketing grows from around $9 million to $12 million, R&D from $5 million to $6.5 million, and G&A from $2.4 million to $3 million, excluding one-off IPO costs – stops scaling anywhere near as fast as revenue.

Management's own long-term targets, for context, are a 50%+ gross margin and a 35% EBIT margin, which lines up closely with where our model already has the business heading by 2027.

So the business is growing exceptionally and is on track to become highly profitable. Sounds good. How much are we paying to get that? Actually, it looks quite cheap to us: Against a market cap of roughly $380 million, cash of about $80 million, and a resulting enterprise value near $300 million, our numbers put Smart Shooter at about 4.3x 2026 EV/Sales and 3.0x 2027 EV/Sales, 13.6x and 8.7x EV/EBIT, and roughly 22x and 14x P/E. We could be too optimistic about how quickly the operating leverage shows up – but even with meaningfully higher costs than we’ve modeled, this still looks cheap for a company on pace to nearly double revenue this year and grow strongly again next year, especially set against two of the closer Israeli drone-adjacent comps, Next Vision and Elsight, which trade at 30–41x forward EV/EBITDA.

After going through the filings, backlog, reported orders and current revenue visibility, we have decided to build a meaningful position. Stacked up against other listed drone and counter-drone names – Elsight (ELS.AX), Ondas (ONDS), Red Cat (RCAT), DroneShield (DRO.AX) – we think Smart Shooter is one of the most interesting setups in the sector right now, arguably better positioned on current numbers than any of the four. The question we keep coming back to is whether the recent acceleration in orders is the start of a much larger adoption cycle across NATO militaries, or just a couple of unusually good quarters. If it’s the former, we suspect the market is still underestimating how fast this business can scale.

There’s a second option on top of everything above, and it's the one we definitely want to emphasize. Right now, essentially all of Smart Shooter’s revenue is hardware – armies pay for the sight, get standard training and a warranty, and about 10% of current revenue already comes from repeat customers buying spares, service, and extended warranties. Management’s stated strategy, in their own words, is “hardware first, software later”: get the installed base as large as possible, and only then start selling paid AI upgrades, new detection algorithms, and additional “apps” on hardware that’s already in the field. This should be recurring, SaaS-like revenue at close to 100% gross margin. We think that’s a part of the story the market doesn’t yet fully appreciate. None of that is in the numbers above, and neither are the newer products already in Smart Shooter’s pipeline. Call both a free option. If either of them succeeds, the business could become much more valuable in the future.

2. Electro Optic Systems

Ticker: $EOS.AX

Smart Shooter is a fantastic business, but their products only cover the very last part of a counter-drone defense setup. Electro Optic Systems is the company covering the rest: vehicle-mounted cannons that can handle a swarm rather than one target, a laser weapon that fires for pennies a shot, and, as of a few months ago, software meant to tie every sensor and weapon on a battlefield into one system. The order book went from $136 million to $846 million in eighteen months, half-year revenue just grew 284% year-on-year, and EOS spent close to $300 million buying its way into the software layer this year. It’s a noisier story than Smart Shooter’s, but one of the most interesting drone-related companies out there.

What do they do?

EOS was founded in Canberra in 1983 out of satellite laser-tracking research, and spent decades as an obscure Australian optics company. Founder Ben Greene ran it for thirty-six years until a disclosure scandal forced him out in 2022, and the company that’s emerged since under CEO Andreas Schwer, a Rheinmetall and Airbus veteran, looks almost nothing like the one he inherited: leaner, refocused, and aimed squarely at the same drone-defense issues shaping this whole portfolio.

The business has two segments. Space Systems is the small legacy piece – space-domain-awareness and optics, about $13 million of last year’s revenue. Defence Systems is everything else and everything that matters: roughly 90% of revenue, split across three product lines. The R400 “Slinger” is a remote weapon station, a robotic turret pairing a 30mm autocannon with radar and thermal cameras, fired by joystick from inside a vehicle (160 are already in Ukrainian hands).

Apollo is the high-energy laser, currently around the 100-kilowatt class and built to be free of U.S. export restrictions, so it can be sold to allied militaries without Washington’s sign-off. See the intro video below for a better picture of how it works. NiDAR, the newest piece, is AI command-and-control software that fuses whatever sensors and weapons a customer already owns into one decision loop – acquired this year via MARSS, which we’ll come back to.

Where’s the moat?

Any weapon system built with U.S.-origin content, down to a single chip or line of code, needs U.S. State Department sign-off for every export, and that approval doesn’t expire once granted, it attaches to the item forever – the buyer needs Washington’s permission again to resell it, upgrade it, or even share it with an ally in a coalition operation. This isn’t a theoretical scenario. The U.S. forced Israel to unwind a signed $250 million radar sale to China in 2000 by threatening its own aid package. It refused to transfer core fighter-jet technology to South Korea in 2015, which is a direct reason Korea started building that technology itself instead of waiting on Washington. The UAE walked away from a $23 billion F-35 and munitions package in 2021 over exactly this kind of conditionality. Governments that have lived through one of these episodes don’t forget it, and there’s a long list of them right now looking for suppliers who don’t come with a Washington veto attached. EOS built Apollo with zero U.S.-origin content specifically to be that supplier, and in February this year it teamed up with KNDS France on a joint offering marketed explicitly as “ITAR-free evolutive solutions” for Europe, the Middle East and Asia – a major European prime choosing to attach its own name to that pitch is a real vote of confidence.

That’s also, why the Netherlands deal keeps coming up in this writeup: it’s not just a big number, it’s proof the ITAR-free pitch converts into an actual signed contract with a NATO member, with delivery pulled forward a full year because the buyer didn’t have to wait on anyone else’s approval. On the hardware itself, Slinger’s (the turret made by EOS) edge is narrower and more honest: it’s not clearly beating Kongsberg’s Protector, which has shipped over 20,000 units globally and is now building its own counter-drone variant. What Slinger has that Protector wasn’t originally built for is a gun, radar and thermal sight pre-integrated as a single sub-400kg counter-drone package, ready to bolt onto a vehicle rather than assembled from separate parts – a narrower, purpose-built product going up against a much bigger, more general-purpose incumbent. On the laser side, the honest cost argument is sector-wide, not EOS-specific: a Patriot interceptor runs over a million dollars against a drone that might cost a few thousand, and the UK’s own DragonFire laser has an official MOD-cited cost of about $13 a shot. EOS talks about Apollo costing anywhere from ten cents to a dollar a shot depending on which company statement you read, which is aggressively cheap even against that comparison. The real, defensible claim is that lasers as a category are four to six orders of magnitude cheaper per engagement than a missile, and EOS is one of a handful of companies with a laser a NATO government has actually paid for.

Where we think the advantage actually compounds is the part that’s easy to miss because each announcement looks like a one-off. In the past six months, EOS has opened a laser production facility in Singapore, signed a manufacturing partnership with Turkey’s Roketsan, teamed up with KNDS France, formed the joint venture with the UAE’s Gen5, and struck a local-partnership agreement covering South Korea – five separate deals, all trading local production and jobs for market access. That’s a deliberate strategy, and it’s a different kind of moat than a patent: every government that gets a piece of the manufacturing has its own reason to keep buying from EOS rather than switch, on top of not wanting to go back to square one with a competitor. NiDAR fits the same logic – EOS is one of the few companies that owns the guns, the laser and the software that ties them together, where a rival like Anduril’s Lattice is primarily selling the software layer and still needs someone else’s hardware to plug into.

Market tailwinds

The same macro tailwind running through this portfolio applies here, just at a bigger scale – governments are rebuilding entire layers of base and border defense, and EOS sells directly into that rebuild.

NATO allies committed more than $40 billion specifically to counter-drone capability over the next five years at July's summit in Ankara. Global counter-UAS contract awards hit roughly $29 billion in the first quarter of 2026 alone. And the EU's SAFE loan program, which started disbursing this year, already has country-level counter-drone earmarks attached to real money: Poland has allocated €43.7 billion of it, Lithuania €6.4 billion explicitly for air defense and counter-drone systems, and Poland separately has a €2 billion "drone wall" underway on its eastern border.

And EOS order book shows it as well: $136 million at the end of 2024, $459 million a year later, $846 million by mid-2026. It’s been landing orders from the UAE, the Netherlands, South Korea, the U.S. and Australia’s own government almost every month this year.

A few wins stand out for who they came from. The Netherlands placed the first unconditional export order anywhere for a 100-kilowatt-class laser, with delivery pulled forward from 2028 to 2027. Northrop Grumman and L3Harris have both ordered Slinger for their own U.S. programs. And in June, the UAE’s Generation 5 Holding placed a $124 million Slinger order and simultaneously formed a 50/50 joint venture with EOS to build next-generation lasers and manufacture its weapon stations across the Middle East – management has flagged more than $540 million of identified opportunity in that relationship alone ($250 million of next-generation laser orders within 12 months, $290 million of 100-kilowatt laser contracts within 9 – but it is through a 50/50 profit-sharing entity, so probably it will be equity-accounted, not a pure revenue increase).

The MARSS acquisition

EOS’s biggest move this year was buying MARSS Group, completed in May for roughly £170 million all-in – a modest upfront cash payment plus a large earnout tied to future order wins. MARSS makes NiDAR, and the logic is straightforward: EOS sold excellent individual pieces – a gun, a laser – into a battlefield that increasingly needs those pieces talking to each other and to sensors EOS doesn’t make. NiDAR does that, and comes with a Gulf-concentrated customer base that has synergies with EOS’s own Middle East pipeline. The clearest validation so far: BAE Systems selected NiDAR as the command-and-control brain for its next-generation counter-drone platform in June – a real, named, prime endorsement. We do like the direction of EOS becoming a holistic supplier, with a wide offering of integrated hardware-plus-software stack and believe this could lead to higher margins over time.

Turnaround Completed & Back to Strong Growth

The financial history here is messier than Smart Shooter’s, and the headline numbers can mislead if you don’t look underneath. Revenue went $212 million (2021), $138 million (2022), $177 million (2024), then $128.5 million in 2025 – the drop wasn’t the business shrinking, it was EOS selling its EM Solutions satcom subsidiary for roughly $144 million to pay down debt and refocus entirely on counter-drone and lasers. That sale is also why 2025’s headline result was a $17–18 million profit despite the core business losing more money than the year before: the profit was almost entirely a one-off $90 million gain on the sale. Strip that out and the continuing business lost $73.5 million after tax in 2025, with an underlying EBITDA loss of about $24 million.

Since then: gross margin climbed from 48% to 63% over two years. First-half 2026 revenue was $169 million, up 284% year-on-year, and management has raised full-year guidance three times this year, now $280–300 million for the core business alone – more than double last year’s revenue, before whatever MARSS adds on top, which hasn’t been officially quantified yet. Management has guided to positive underlying EBITDA for the first half of 2026. We’re publishing ahead of the actual half-year results, due on August 25th. And even for the following years, we think a 20%+ revenue growth is achievable, with operating leverage improving profitability as well.

On valuation: market cap is ~$2.0 billion AUD, putting EV/Sales at roughly 6x this year's forecasted revenue, in line with DroneShield (~7x) and Kratos (~6x), and only modestly above AeroVironment (~4x).

Worth keeping in mind

In February this year, short-seller Grizzly Research questioned both a conditional $80 million Korean laser contract and MARSS’s pre-acquisition revenue history; the stock fell as much as 46% before recovering. EOS pushed back hard, but the Korean contract has since missed several deadlines and remains unresolved. However, the earnout payable for MARSS acquisition has been already revised upwards, driven by a substantial acceleration in MARSS’s commercial momentum and order intake between the initial announcement (January 2026) and final completion (May 2026), showing us there shouldn’t be an issue on the demand side.

We also need to be careful about the framing of the moat. The ITAR-free laser positioning is real and gives EOS a head start, but it isn’t completely unique as some commentary we found suggests – Israel’s Iron Beam is already fielded and export-marketed, South Korea and China both have their own laser weapons in the field, and Rheinmetall and MBDA are building competing programs with far deeper pockets. We found no patent protecting EOS’s actual laser technology, so the edge is a manufacturing and relationship head start of maybe two to three years, not a technological wall. NiDAR faces the same dynamic: Anduril’s Lattice just won its own flagship U.S. Army contract doing a similar job, and NATO is pushing interoperability standards that could commoditize this software layer over time. The bull case here rests on execution and speed. Still, with government defense contracts, being the first supplier can allow you to build trust, reputation and become very entrenched.

What’s the verdict?

On any standard screen, EOS still reads as a lossmaking Australian small-cap with very little analyst coverage and a disclosure scandal attached to its name, the kind of thing that makes any institutional money stay away. Well, that’s exactly why there’s an opportunity. Most if the issues are a thing of the past, there is new management, and the company seems to be very focused and doing the right moves now.

The business is growing quickly again, has multiple competitive advantages, and has a more holistic, integrated product portfolio today. We believe that continued growth, coupled with improving profitability could lead to significant re-rating of the stock in the next years, making EOS one of the best bets on the growth of this sector and a company worth owning through all the noise.

3. Boresight

Ticker: $BST.AX

EOS and Smart Shooter both build the systems that knock a drone out of the sky. Boresight builds the fake drones that others – including both companies above – use to prove those systems actually work. It’s also, by a wide margin, the smallest and newest name in this piece: an A$70 million market cap company that only listed on the ASX in June 2026. Unlike Smart Shooter, we’re not buying yet. But it’s a super-interesting name worth having on a watchlist, and here’s why.

What do they do?

Founded in Canberra in 2020, Boresight makes low-cost, aerial target drones – quadcopters and, soon, fixed-wing platforms designed to be shot down, jammed, or otherwise killed, repeatedly, during live counter-drone training and system certification. The flagship BQ-400 quadcopter has sold more than 6,000 units to date; a larger, payload-carrying sibling, the BQ-750, and a sovereign attritable ISR drone sold to the Australian Defence Force, the BS-350, round out the current lineup. Three more products, a fixed-wing target, a fast FPV quadrotor target, and a loitering-munition target, are due to launch through the back half of 2026.

The business model is more interesting than the hardware itself. Boresight sells cheap, unit-level target-drone orders that bypass slow, multi-year procurement cycles; those drones then get consumed in training and need reordering, which creates a nice recurring revenue stream. It also locks the company into a base’s training doctrine; from there it upsells ISR variants, swarm software and consumables.

Multiple positive signals

Gross margins are already north of 50%, which for a hardware business this early is a real signal – there’s genuine room for operating leverage as revenue scales. And it is indeed scaling very fast: FY24/25 came in at A$4.36 million, up 58% on the year before, and order intake in the most recent quarter is already running at close to a A$10 million annualized rate.

Another exciting data point from the research: Boresight signed a lease this July on a new 812-square-metre Huntsville, Alabama facility, roughly 15x the size of its current U.S. site, and has already taken occupancy, with production migrating over August and September. Once ramped, that one facility alone can build more than 5,000 BQ-400s a year (roughly equal to the company’s entire cumulative sales since 2020). In management’s own words, this “enables a massive scaling of production from the hundreds to thousands.” Huntsville also puts them in one of the densest U.S. defense hubs (Redstone Arsenal, Army Aviation and Missile Command), and U.S.-based manufacturing means a “Made in the USA” stamp, tariff insulation, and shorter delivery times to their fastest-growing market.

In addition, the cheapest competitors, Chinese drone-makers like DJI’s, are banned or restricted across most Five Eyes and allied defense markets – handing the field to Boresight and a handful of other Western alternatives largely by default.

Lastly, the current valuation (~7x run-rate revenues) is very reasonable given the growth.

…but questions remain

Boresight isn’t profitable, and keeps burning cash. Current reserve (A$7.88 million as of the June quarter) implies something like 8.8 quarters of runway at the recent burn rate, but that assumption predates the Huntsville build-out. We’d expect another capital raise before this business is self-funding, signaling dilution risk.

There’s also a lot we simply can’t verify yet. The “6,000-plus units sold” and “sold into every Five Eyes military” claims are entirely company-sourced; we could find zero independent confirmation of any specific contract, customer or country. And another important open question actually came up while we were researching Smart Shooter, not Boresight: armies sometimes don’t buy a purpose-built dummy drone system at all. They tie a cheap foam or 3D-printed drone silhouette underneath an ordinary, disposable consumer drone on a string and shoot that down instead, at a fraction of the cost of a dedicated system with its own software and ground control station. That’s a structural question mark over the whole category. It’s exactly the kind of workaround a Boresight-style product should make obsolete once armies scale up training volume and want genuine repeatability, but we don’t yet have good evidence of how much of the addressable market that workaround has already eaten, versus how much genuinely needs what Boresight is selling.

Where we land?

There’s a real, exciting growth story here: the margins, the order acceleration, and the capacity build. But we don’t have Smart Shooter-level conviction yet. Too much of what we’d want to know to underwrite a position simply isn’t available yet. We’re watching this one closely rather than buying it today, and we’ll revisit as more of that picture fills in or if the price drops significantly.

We are a Czech-based investment fund and research team focused on global small and mid-cap equities, compounders, and asymmetric opportunities.

Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses here on our Substack. If you enjoy deep fundamental research on companies with compelling upside potential, we’d love to have you join us and subscribe for our future posts:

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Disclaimer: This post is for informational purposes only and is not investment advice. It reflects the author’s personal views and estimates, which may be incomplete or incorrect. Do your own research and consult a qualified advisor before making investment decisions. The author/affiliated fund currently holds a position in $SMSH.TA and may buy or sell shares at any time.

Sometimes the most interesting opportunities appear when a genuinely strong business gets caught in a perfect storm of market-wide panic, rapidly changing expectations and a very specific narrative that investors suddenly decide to price as fact.

We believe this may be exactly what is happening with SEERS Technology.

SEERS is a Korean healthcare technology company building a remote patient-monitoring platform around thynC and MobiCARE. The company is currently in the middle of an extraordinary earnings inflection: hospital penetration is expanding rapidly, the installed base is creating an increasingly meaningful recurring-revenue stream, and international expansion is only beginning.

Yet after a severe correction in Korean equities and, more importantly, growing concerns about competition and potential pricing pressure in remote patient monitoring, the stock has fallen dramatically from its highs.

At today’s valuation, depending on the exact FY2026 earnings outcome, we estimate SEERS trades at roughly 11–14x 2026E EV/EBIT.

That would not necessarily be extraordinary for an average Korean small-cap. But SEERS is anything but an average business.

Our current base model has revenue increasing from approximately KRW 151bn in 2026 to KRW 319bn in 2028, while EBIT increases from roughly KRW 68bn to KRW 159bn. Importantly, we are not assuming that the extraordinary pace of Korean thynC installations continues indefinitely. Our model actually assumes a significant normalization in new-bed additions after the current rollout. And that is precisely what makes the setup interesting.

The market appears increasingly worried that SEERS’ current economics are unsustainable. We think the evidence so far points in the opposite direction.

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Why we are publishing this now

This is a somewhat different write-up from our usual research.

Both I and Tomáš, who normally does a large part of the work turning our research into these long-form pieces, are currently on vacation. SEERS also reports earnings very soon, and given what has happened to the share price, we thought publishing our current work before the results would be considerably more useful than producing a perfectly polished 10,000-word report several weeks later.

So treat this as a rapid research update and bottom-up model, rather than our final word on the company.

The models below were built relatively quickly from publicly available hospital, bed-installation and revenue data. They will inevitably be imperfect.

But that is also part of the point.

We do not think our model needs to be precisely right for the current valuation to look interesting.

Our numbers can be materially too optimistic. Competition can become stronger. Margins can come down. International expansion can take longer than expected.

And SEERS could still be inexpensive.

Why does this opportunity exist?

The starting point is unusually simple: SEERS has been hit by two different sell-offs at the same time.

First came one of the most violent corrections the Korean equity market has seen in years. The KOSPI fell more than 40% from its recent peak during the July rout, with AI-related and semiconductor names such as Samsung Electronics and SK Hynix among the hardest hit. On July 28 alone, the index lost 10.8%, triggering a market-wide circuit breaker, and the following session brought another sharp decline.

SEERS was then hit by a much more company-specific concern.

A Korean article raised fears that competition in remote patient monitoring was accelerating and that the market could eventually move toward lower pricing and weaker margins. That narrative was particularly damaging because the current SEERS investment case depends on very high profitability and continued rapid penetration of Korean hospitals.

The combination created almost a perfect storm: a high-beta Korean growth stock caught in a historic market sell-off, followed by questions about whether its exceptionally attractive unit economics were sustainable.

The stock fell close to 60% from its highs.

Yet so far, the underlying business data have not shown anything resembling a collapse.

In fact, recent reporting indicates that SEERS has already exceeded 220 hospitals, versus an original target of approximately 200 hospitals for the whole of 2026. At the end of 2025, thynC had approximately 12,000 installed beds; in Q1 2026 alone, SEERS billed another approximately 8,300 beds. Expectations entering Q2 suggested another significant wave of installations, at least another 8,000, which is ahead of full year plan for 30,000 beds.

That is the disconnect we are interested in.

The market is increasingly pricing the stock as if competition is about to materially impair growth and margins, while the most recent operating evidence still points to rapid hospital adoption, record revenues and record profitability.

What does SEERS actually do?

SEERS is essentially building a remote patient-monitoring infrastructure platform around two main products: MobiCARE and thynC.

MobiCARE is focused primarily on ambulatory ECG monitoring. Patients wear the device for an extended period, SEERS collects large amounts of ECG data, and its software helps analyze that data for physicians. This business already has an established footprint and is now beginning to expand internationally.

The more important growth engine today, however, is thynC.

thynC turns conventional hospital beds into connected smart-monitoring beds. Patients wear wireless sensors that continuously collect vital-sign data, while the hospital receives real-time monitoring through a centralized platform.

The value proposition is not simply that the hospital buys another device.

The system can reduce the amount of manual monitoring required from nurses, provide earlier warning of deterioration, reduce unnecessary alarms and centralize patient data. In other words, the hospital is buying a workflow improvement rather than just a piece of hardware.

That distinction matters enormously for both pricing and switching costs.

Once a hospital has installed the system across hundreds or thousands of beds, integrated it into its internal processes, trained staff and accumulated experience using the platform, changing suppliers becomes considerably more complicated than replacing a normal medical device.

SEERS has also emphasized interoperability with hospital systems and other devices. Over time, the company is effectively trying to become a monitoring layer across the hospital, rather than remaining a supplier of individual sensors.

The economics of one installed bed

This is probably the most important part of our model.

Based on the installation and revenue figures we have reviewed, we currently estimate approximately KRW 3.5m of initial installation revenue per bed.

The exact number can differ across contracts (3 to 4.5m), and we therefore prefer to use a somewhat conservative blended assumption rather than extrapolating the highest reported contract values.

But the installation revenue is only the first part of the economics.

Once a bed is installed, SEERS continues generating recurring revenue from monitoring services, consumables, software and related usage. For our model, we assume approximately KRW 1.2m of annual recurring revenue per installed bed.

That creates an important lag in the income statement.

A large wave of installations initially produces installation revenue. But in the following years, the installed base remains in place and begins generating recurring revenue even if the rate of new installations slows.

This is why simply looking at the number of newly installed beds can understate the long-term earnings power.

Our model deliberately assumes that domestic rollout slows after the current acceleration. We are not forecasting an indefinitely rising number of new Korean installations.

Instead, the composition of revenue gradually changes. The installed base becomes larger, recurring revenue compounds, and international sales begin contributing more meaningfully.

That is exactly the kind of revenue mix we generally like: the company receives a large upfront payment for deploying the system, then continues monetizing the installed base for years afterward.

Why we think the competitive fears may be overstated

Competition is clearly the main risk. If other providers can offer an equivalent system at materially lower prices, win hospital tenders and force SEERS to cut pricing, the current margin structure would be difficult to sustain. However, we think the market may be extrapolating this risk too aggressively.

First, we have not yet seen clear evidence of an actual price war. One of the most relevant competitors, which is reportedly preparing for an IPO, appears to price comparable hospital-monitoring solutions at levels broadly similar ( 4m KRW per bed) to — and in some cases above — the assumptions we use in our SEERS model. This does not rule out future pricing pressure, but it certainly does not support the idea that industry pricing is already collapsing.

Second, SEERS has a meaningful first-mover advantage and relatively high switching costs. It has already deployed the system across a large and rapidly growing number of hospitals, accumulated substantial patient data and integrated thynC into hospital workflows. Once hundreds of beds are connected, staff are trained and the system becomes part of everyday monitoring, replacing the provider becomes considerably more complicated than simply purchasing a cheaper device. In healthcare, reliability, integration and continuity can matter at least as much as price.

Third, and perhaps most importantly, SEERS itself says it is not seeing the competitive pressure that the market currently fears. Immediately after the negative article was published, the company released a report directly addressing the issue, stating that it was not experiencing meaningful competitive pressure, pricing pressure or margin deterioration and that hospital expansion continued according to plan. Management also indicated that it retains good visibility into the deployment pipeline. Of course, management commentary alone does not prove that competitive pressure will not emerge — but the speed and confidence of the response, combined with the continued pace of hospital additions, is another piece of evidence that the situation on the ground may be considerably better than the share-price reaction implies.

None of this means SEERS is immune to competition. But so far, actual pricing, continued hospital adoption and the company’s own visibility all point in the same direction: the competitive threat appears much less immediate than the market is currently pricing in.

The hospital rollout still looks extremely strong

The easiest way to test the competitive thesis is simply to watch new deployments. And so far, the numbers remain difficult to reconcile with the idea that SEERS is suddenly losing momentum.

Management’s original target was roughly 200 hospitals during 2026. Recent reporting already puts the number at more than 220.

At the end of 2025, the company had approximately 12,000 installed beds. Q1 2026 alone included approximately 8,300 billed beds.

For our FY2026 model, we assume approximately:

Q1: 8,300 beds
Q2: 8,500 beds
Q3: 8,000 beds
Q4: 8,000 beds

That gives us around 32,800 billed/installed beds for the year.

Importantly, we are not assuming that the pace continues accelerating during the second half. We essentially assume that it flattens.

The addressable Korean market is roughly 380,000 hospital beds, while SEERS currently covers only around 8,000 beds — still just a small fraction of the potential market. Even reaching 30,000 new beds per year would represent less than 10% of the addressable market annually, which makes this pace of expansion look achievable rather than exceptional.

Another encouraging signal is that existing hospital customers appear to expand their deployments over time rather than simply trial the system once.

According to management, the average deployment per hospital increased from roughly 38 beds in 2024 to 109 beds in 2025, with at least 150 beds per hospital expected in 2026. To us, this is an important indication that hospitals are satisfied with the technology and see enough economic and operational value to keep adding beds even at current pricing.

Our 2026 model is already close to current analyst expectations

One reason we are reasonably comfortable with the model is that the near-term outputs line up surprisingly well with independent analyst estimates. Our FY2026 revenue estimate is approximately KRW 151bn.

A recent analyst estimate expects SEERS to exceed roughly KRW 150bn of annual revenue, while another estimate puts Q2 revenue at around KRW 35bn and operating profit at approximately KRW 15bn.

Our Q2 estimate is around KRW 36bn revenue. So despite building the model primarily from bed additions, estimated revenue per installation and recurring revenue from the installed base, we arrive almost exactly around current sell-side expectations.

That is reassuring because it suggests the basic unit economics are broadly consistent with what is actually appearing in reported numbers.

We use a relatively conservative assumption for revenue per installed bed (3.5m), while our 2026 installation volume is modestly above management’s original target — although Q1 itself was already running ahead of that plan. For recurring revenue, we model it primarily from the existing installed base and prior-year installations; this may actually be somewhat conservative, as some estimates suggest 2026 recurring revenue could exceed KRW 30bn.

For MobiCARE and international markets, we expect the contribution to remain relatively limited in the first half of 2026, with growth beginning to accelerate from H2 2026 as the Middle East rollout starts to ramp (more on that later). This should become a much more meaningful growth driver from 2027 onward as SEERS expands beyond Korea and begins monetizing markets with significantly larger addressable opportunities and potentially more attractive reimbursement economics.

International expansion could become the next growth leg

SEERS is no longer purely a Korean story.

MobiCARE has already begun expanding into overseas markets. In May, the company announced a UAE agreement covering approximately 105,000 units over three years, worth around 22bn KRW.

The more interesting opportunity, however, is the potential international rollout of thynC.

Recent reporting points to thynC expansion into the Middle East beginning around Q3 2026, with the US becoming a potential market from 2027.

The addressable market abroad is significantly larger. The Korean target market discussed by the company is roughly 380,000 beds, while the Middle Eastern opportunity alone could encompass approximately 700,000 beds and the US many more.

And reimbursement economics abroad can be materially better than in Korea. That means even a relatively small international market share can have a meaningful effect on consolidated revenue.

We remain deliberately conservative here. Our model has MobiCARE and international revenue representing only around:

5.9% of revenue in 2026
10.8% in 2027
23.0% in 2028.

That does not require SEERS to suddenly dominate the Middle East or the United States.It simply assumes that international commercialization gradually becomes meaningful.

One analyst scenario similarly assumes that only about 20% of 2028 revenue comes from outside Korea, which could prove relatively conservative.

Our model — and why we think the valuation is still wrong

This is where the thesis ultimately comes together. Our model is not especially conservative.

We assume high margins. We assume SEERS preserves a strong competitive position. We assume international expansion works.But it is also far from a perfect bull case.

We assume domestic bed additions stop accelerating. One analyst has discussed approximately 30,000 beds in 2026, 40,000 in 2027 and 55,000 in 2028.

We do not assume SEERS captures anything close to the full addressable market, just around 25 - 30 % by 2028. And international revenue remains a relatively modest share of the business through most of the forecast period. Even under those assumptions, the earnings trajectory is exceptional.

Another important part of the thesis is the gradual ramp-up of recurring revenues from 2027 onward. In our view, recurring revenues should consequently represent an increasing percentage of SEERS’ total revenue over time, improving revenue visibility and potentially the overall quality and margin profile of the business.

At the current share price, the company trades at roughly 12–14x our estimated 2026 EV/EBIT, depending on the exact balance-sheet and earnings assumptions used.

That looks difficult to reconcile with a company that could still compound earnings at roughly 40–50% annually over the next several years.

And this is the key point:

We do not need the model to be exactly right.

If 2028 revenue is 20% or 30 % lower than we expect, if margins are substantially lower, or if competition takes more share than we currently model, today’s valuation can still leave room for an attractive return.

Meanwhile, current analyst targets remain around KRW 60,000–80,000 per share in some published reports, materially above the current market price.

We do not invest based on analyst price targets.

But they highlight how unusually wide the gap has become between the market price and the earnings trajectory still being modeled by analysts following the company.

Why margins can remain high

The obvious objection to our model is the margin. SEERS reported extremely high profitability recently (Q4 and Q1), including an EBIT margin around the low-40% range.

Our model assumes approximately 45% EBIT margin in 2026, increasing gradually to 47.5% in 2027 and 50% in 2028.

That is clearly not conservative in isolation. It is probably the most optimistic part of the model. But there is a structural reason why the margins can remain high if the business continues scaling.

The infrastructure and software platform have already been developed. As the number of monitored beds increases, recurring revenue should scale faster than the central cost base. International revenue can also come with attractive economics.So some operating leverage is reasonable.

Could competition push margins down instead? Absolutely.

And that is precisely why we do not view the model as a precise price target. If margins end up at 35% rather than 50%, our 2028 EBIT would be materially lower.

But when a business capable of growing revenue at this pace and generating a growing share of recurring revenue trades at only a low-teens multiple of current-year EBIT, the investment does not require our most optimistic margin assumption to work.

Furthermore, even at today’s pricing, the economics for hospitals seem very attractive: based on the cost savings and operational efficiencies created by thynC, we estimate that a hospital can earn back its investment in roughly one year. That leaves substantial economic value for the customer even while SEERS maintains strong pricing and high margins.

What would prove us wrong?

There are several things we are watching closely.

The first is obvious: pricing.

If new tenders begin clearing materially below historical levels, that would directly challenge our assumptions.

The second is new hospital wins.

If the hospital count and newly installed beds begin slowing sharply while competitors accelerate, that would indicate that SEERS’ first-mover advantage is weaker than we currently believe.

Those are main risks, in our view, the current valuation already assumes a meaningful probability that some of those materialize.

The near-term catalyst

Normally we would prefer to spend another week refining every assumption. In this case, timing matters.

SEERS reports its next results very soon, 13 August. Based on the number of new hospital deployments, billed beds and reported contract activity during the quarter, we think there is a reasonable chance the upcoming numbers remain very strong.

If the competitive pressure discussed in recent articles is real, it may eventually become visible. But given how quickly the current installations were already contracted and deployed, we would be surprised if the full effect were visible immediately in the upcoming quarter. That makes the results particularly interesting.

Another record quarter would not eliminate the competitive risk. But it could force the market to reconsider whether a nearly 60% drawdown adequately reflects what is actually happening in the business today.

And that is why, despite the uncertainty, we materially increased our position during the recent sell-off.

Valuation

At the current EV of roughly KRW 900bn, SEERS already looks extremely attractive on our base-case estimates.

Based on our model, the company is currently trading at approximately:

• 2026E: 13.3x EV/EBIT

• 2027E: 9.2x EV/EBIT

• 2028E: 5.6x EV/EBIT

On earnings, the same model implies roughly 14.0x 2026E P/E, 11.5x 2027E and only 7.0x 2028E P/E.

For a company that should still be growing rapidly, has an expanding installed base, increasing recurring revenues and international expansion only beginning to contribute, we think these multiples are extremely difficult to reconcile with the quality and growth profile of the business.

But what if our model is far too optimistic?

To illustrate this, we deliberately stress-tested our estimates and assumed that 2028 revenue is one-third lower than our base case. Instead of approximately KRW 319bn, SEERS would therefore generate only around KRW 212bn of revenue.

We then also assume that the economics deteriorate materially and that the company reaches only a 35% EBIT margin. That would result in approximately:

KRW 212bn revenue × 35% EBIT margin = ~KRW 74bn EBIT

At today’s roughly KRW 900bn EV, SEERS would still trade at only:

• ~4.2x EV/Sales

• ~12.1x EV/EBIT

And this is a scenario where our revenue estimate is wrong by an entire third and margins end up materially below what the current economics of the business would suggest. If that really happens by 2028, we do not think price will be materially lower than today. This is where we see the margin of safety.

That downside sensitivity is one of the main reasons we increased our position.

The market appears to be pricing a much worse scenario

At today’s price, we think the market is effectively assuming that SEERS’ current growth will fade very quickly, competition will materially damage the economics of the business, and margins will eventually compress.

That can happen. But we do not think the current evidence supports treating it as the base case.

There is obviously execution risk. Competition is real, the current margins are unusually high, and our forecasts could prove too optimistic.

But we think the valuation provides an unusually large cushion against being wrong.

The market currently appears to price a future that is dramatically worse than what the company’s operating data still suggest. SEERS does not need everything to go right — it only needs the market’s current pessimistic scenario to be too extreme.

And given the valuation, the continued rollout, growing recurring-revenue base and upcoming international expansion, we believe that creates a very attractive risk/reward.

We are a Czech-based investment fund and research team focused on global small and mid-cap equities, compounders, and asymmetric opportunities.

Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses here on our Substack. If you enjoy deep fundamental research on companies with compelling upside potential, we’d love to have you join us and subscribe for our future posts:

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Disclaimer: This post is for informational purposes only and is not investment advice. It reflects the author’s personal views and estimates, which may be incomplete or incorrect. Do your own research and consult a qualified advisor before making investment decisions. The author/affiliated fund currently holds a position in $ALRIS and may buy or sell shares at any time.

We recently had the opportunity to speak directly with FitEasy’s CFO and another member of the company’s management team. To the best of our knowledge, this is the first publicly available investor-focused interview with FitEasy’s CFO, and potentially one of the most detailed English-language discussions with the company’s management available anywhere.

That matters particularly because FitEasy remains our largest position, and management has historically maintained a relatively limited public profile, especially toward international investors.

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Quick pitch

FitEasy is a perfect example of why we focus on underfollowed small caps: a rapidly growing Japanese fitness company with a differentiated business model, strong unit economics, and a long runway for expansion, yet still largely overlooked by international investors. The company is growing earnings by around 60% YoY, has consistently beaten its own guidance, and we believe it can compound earnings at roughly 30% annually over the coming years. With a clear path toward 1,000 locations in Japan, strong same-store membership growth, multiple additional monetization opportunities and significant operating leverage, FitEasy remains our largest position and one of our highest-conviction investments.

For a detailed overview of the company, business model, competitive advantages, valuation and our full investment thesis, read our original deep dive:

Introduction

We went into the conversation with a long list of questions built from our previous research of the company and the Japanese fitness market. Rather than simply going through information already available in presentations, we focused primarily on the questions that we believe matter most to the investment thesis — and where publicly available information remains limited.

We discussed the path toward 1,000 locations in Japan, the ultimate size of the domestic opportunity, franchise economics, competition with Anytime Fitness and ChocoZAP, same-store sales, churn, membership capacity, the economics of new services, personal training, the FitEasy app, overseas expansion and management’s longer-term vision for the business.

Several of the answers gave us information that, as far as we know, has not previously been publicly disclosed in this level of detail and helped us better understand why the model has worked so well so far.

Below, we summarize the most important takeaways from the conversation, together with our own interpretation of what they mean for the investment thesis.

About the Call

Before getting into the individual topics, a short note on the format of the conversation.

The call was attended by FitEasy’s CFO and another member of the company’s team, who translated our questions from English into Japanese and management’s answers back into English.

Communication worked well on strategic and operational topics. However, for some more specific financial concepts — such as operating leverage, take rates or margin expansion — there appeared to be occasional limitations in translating the exact meaning of our questions. As a result, some answers were less direct than we would have liked, with management occasionally returning to broader explanations around membership growth, new store openings and fixed-cost development.

We therefore want to be careful not to overinterpret individual statements where the translation may have affected the answer.

That said, our overall impression of management was very positive.

The team appeared to have a deep understanding of individual club operations, a well-developed franchise model and a strong focus on customer experience. Management systematically collects customer feedback and uses it to improve the offering, while at the same time maintaining a clear long-term vision for expansion.

Another thing that stood out to us was the apparent conservatism in financial communication. Management seems considerably more focused on building the network and maximizing the long-term strength of the FitEasy platform than on optimizing short-term reported margins.

Our impression from the conversation was that underlying operating performance could potentially develop better than implied by current guidance, but management is understandably reluctant to promise this in advance.

Part I: Long-Term Strategy & Expansion

1. The Priority Remains Simple: Expand the Network

Management was very clear that the company’s primary objective remains expanding the number of FitEasy locations across Japan.

Alongside store expansion, the company continues to invest in several areas:

• further development of the FitEasy mobile app,

• introduction of additional services,

• expansion of its wellness and entertainment ecosystem,

• increasing the value of membership,

• improving the overall customer experience,

• and creating additional monetization opportunities within existing clubs.

Nevertheless, store expansion remains at the core of the FitEasy story.

Management still views the company as being relatively early in the development of a nationwide network and, importantly, does not currently see a reason why the pace of expansion should meaningfully slow in the foreseeable future.

Our take: There was relatively little here that surprised us. Rapid network expansion has always been the core of our FitEasy thesis, and management’s priorities remain broadly in line with what we expected.

2. 1,000 Locations Look More Like a Milestone Than an End Goal

FitEasy has previously communicated its ambition to reach at least 1,000 locations in Japan.

Our conversation with management reinforced the view that they do not see 1,000 clubs as the ultimate saturation point for the business. Instead, it appears to be an important medium-term milestone on the way toward a potentially substantially larger network.

Management believes that the Japanese market could theoretically support approximately 2,500 FitEasy locations over the longer term.

Even more importantly, management sounded confident about the company’s ability to continue increasing annual openings.

Under the current plan, FitEasy could reach more than 150 new openings per year around 2028. From our discussion, we understood that management believes this level can at least be maintained beyond 2028 — and potentially increased further.

This is important because the absolute number of openings becomes increasingly powerful as the installed base grows, while the company continues to benefit from its franchise-led expansion model.

Our take: This was one of the more important confirmations from the call.

Our concern was never really whether FitEasy could continue growing rapidly over the next two or three years — the current pipeline already provides considerable visibility into that. The bigger question was what happens after 2028, once annual openings have already increased substantially.

Management’s answers gave us greater confidence that 150+ annual openings should not necessarily represent peak expansion. Our interpretation of the conversation was that management considers the 1,000-location target highly achievable and believes it can maintain a high pace of openings beyond that point.

Based on the current trajectory, our own rough estimate is that FitEasy could potentially approach the 1,000-location milestone around 2030–2031. This is our estimate, not company guidance.

The previously discussed theoretical potential of roughly 2,500 Japanese locations provides another layer of runway beyond that. Naturally, we would expect expansion to become progressively more difficult as penetration increases, so we would not extrapolate today’s growth rate indefinitely. Nevertheless, the call strengthened our view that the domestic runway extends considerably further than the current medium-term plan.

3. Franchise Demand Does Not Appear to Be the Bottleneck

One of our biggest questions going into the call concerned the supply of franchisees.

The faster FitEasy expands, the more important it becomes to continuously attract high-quality franchise partners. A strong concept alone is not sufficient if the company eventually runs out of capable operators willing to fund and open new locations.

Management’s answer here was reassuring.

The company indicated that it currently has more than 130 prospective franchisees in its pipeline / waiting for an opportunity to open a FitEasy location.

The broader message was clear: FitEasy currently has no shortage of franchise demand.

In fact, demand appears strong enough that the company can remain selective rather than simply accepting every potential franchise partner. This should help FitEasy maintain quality as the network scales.

Our take: This was probably one of the most valuable incremental datapoints from the call.

Before the conversation, one of our concerns was whether franchisee availability could eventually become a bottleneck as FitEasy moves toward 100+ and eventually 150+ openings per year. A franchise model can only scale as quickly as the ecosystem of franchise partners behind it.

Hearing that there are already 130+ prospective franchisees in the pipeline materially reduced this concern for us. It suggests that, at least at the current stage of expansion, the constraint is not a lack of people willing to open FitEasy clubs.

4. International Expansion Could Become the Next Growth Engine

Another particularly interesting part of the discussion was FitEasy’s longer-term international ambition.

Management indicated that once the company reaches approximately 1,000 locations in Japan, it intends to start thinking much more seriously about expansion outside its domestic market.

Southeast Asia was mentioned as the most likely initial region.

International expansion is not an immediate priority. Management first wants to capitalize on the substantial opportunity still available in Japan, where the company understands the market, has established franchise infrastructure and continues to see significant white space.

Only after reaching much greater domestic scale does management expect international expansion to become a meaningful strategic priority.

Our take: This was partially new and particularly interesting information for us.

We had previously viewed FitEasy primarily as a Japanese growth story and did not incorporate meaningful international expansion into our core thesis. The fact that management already has a framework for moving abroad after reaching approximately 1,000 domestic locations introduces an additional source of long-term optionality.

If our estimate of reaching roughly 1,000 Japanese locations around 2030–2031 proves directionally correct, international expansion could begin to become relevant around that period. Again, this timing is our interpretation rather than explicit company guidance.

We currently assign relatively little value to international expansion in our base case. For that reason, if the concept ultimately proves transferable outside Japan, international growth could represent meaningful upside that is not necessary for the current investment thesis to work.

PART II: STORE ECONOMICS & OPERATING MODEL

6. New Store Openings & Pre-Sale Memberships

One of the areas we wanted to understand better was how FitEasy de-risks new store openings and how quickly new locations can reach profitability.

FitEasy appears to have developed a very effective process around new openings. Well before a club officially opens, the company begins local marketing and pre-selling memberships. Management indicated that new locations can already have several hundred signed-up members before opening their doors — in some cases roughly 300–500 members.

This means that a new club can start operations with a meaningful membership base from day one rather than spending its first several months slowly building traffic from zero.

Management did not provide us with an exact standardized break-even period, but the clear message was that new locations can reach profitability very quickly. With several hundred members already secured before opening, many stores appear to start relatively close to an economically sustainable level.

Perhaps the most striking datapoint was that, according to management, FitEasy has not had to close a single location so far. We actually asked about this twice during the conversation to make sure we understood the answer correctly.

Our take: FitEasy appears to have developed a repeatable playbook for selecting locations, marketing them ahead of launch and building a meaningful membership base before the doors even open.

Having roughly 300–500 members in some cases before opening is particularly attractive when a healthy mature location tends to operate around approximately 1,000 members. It means that a substantial portion of the membership required for an economically successful club can potentially be secured before operations even begin.

Combined with the fact that, according to management, no FitEasy location has yet needed to be closed, this gives us greater confidence in both their site selection and local marketing capabilities. It also significantly reduces one of our concerns around accelerating the pace of openings: that faster expansion could eventually lead to weaker locations and deteriorating unit economics.

7. Optimal Number of Members per Location

Management indicated that around 1,000 members per club represents an optimal level.

This is not a hard capacity limit. Individual locations can accommodate significantly more members and management mentioned that some clubs can reach around 2,000 members. However, at those levels the club can already become relatively crowded.

Once membership meaningfully exceeds approximately 1,000, management generally sees more value in opening another location nearby rather than continuing to push membership density at the existing club higher.

This approach has several advantages:

• it maintains a better customer experience,

• reduces overcrowding of equipment and facilities,

• increases network density,

• brings locations closer to members,

• and creates additional room for franchise expansion.

Importantly, nearby FitEasy clubs do not necessarily have to offer exactly the same experience.

One location might include a sauna, another golf simulators, karaoke or other wellness and entertainment services. FitEasy can therefore differentiate nearby locations through its growing ecosystem of additional services.

This should help reduce direct cannibalization between clubs and potentially make the network itself more valuable to members.

Our take: FitEasy appears willing to protect the customer experience and use excess local demand as an opportunity to open another location.

The fact that some locations can support around 2,000 members is also encouraging because it shows that the roughly 1,000-member level is not a hard physical ceiling. Nevertheless, once a location meaningfully exceeds that level, opening another nearby club can make more strategic sense than continuing to overcrowd the existing one.

We also think the increasing differentiation between locations is important. If one club offers a sauna, another golf simulators and another different wellness or entertainment services, nearby locations do not necessarily have to be purely cannibalistic. Instead, increasing network density can improve the overall FitEasy proposition for customers.

There is, however, another implication for our forecasts. FitEasy already appears to average more than 900 members per location, meaning the existing network is gradually approaching management’s roughly 1,000-member optimal level.

That is obviously a very positive indication of demand, but it also means that membership growth per mature store cannot continue at today’s pace indefinitely.

8. Same-Store Membership Growth and Growth of Existing Clubs

We also specifically asked management about growth within existing locations rather than growth generated purely by new store openings.

If we understood the translated response correctly, management believes that existing locations could continue growing at around 10% annually for approximately the next two years.

This is important because FitEasy’s current growth is not driven only by opening additional clubs. Existing locations are still maturing and adding members, creating another layer of organic growth on top of network expansion.

At the same time, the comments around optimal membership levels suggest that there is naturally a limit to how long this can continue.

Our take: We see management’s expectation of roughly 10% growth at existing locations over the next couple of years as positive. However, we would be cautious about extrapolating current same-store membership growth much further into the future.

With average membership already above 900 per location and management viewing roughly 1,000 members as an optimal level, physical capacity will eventually become a constraint.

Therefore, we think same-store membership growth could remain strong for another 2-3 of years but should gradually normalize thereafter.

Importantly, that does not necessarily mean same-store revenue growth has to disappear. As the membership base matures, a larger part of growth could instead come from improved monetization through additional services, personal training and other value-added offerings.

So longer term, we expect FitEasy’s growth algorithm to gradually shift from a combination of new openings and rapid membership growth at existing stores toward new club openings, greater network density and higher monetization of the existing membership base.

Part III: The Franchise Model

9. Typical Franchisee Profile

FitEasy’s franchise partners generally do not operate just a single location. Management indicated that a typical franchisee operates around three clubs, although the range can be roughly one to five locations.

This makes sense from an operational perspective. Once a franchisee has successfully opened and operated the first FitEasy location, they already understand the company’s processes, operating standards and local marketing model, making subsequent openings easier.

FitEasy therefore appears to be building not simply a large number of individual franchise relationships, but a network of regional partners capable of operating multiple locations over time.

We do not have any particularly strong incremental view on this point from the call, but it helps explain how FitEasy can continue accelerating openings without having to find an entirely new franchise partner for every new location.

10. Franchisee Selection & Quality Control

One thing that came across positively during the conversation was how actively FitEasy manages its relationship with franchisees even after a location has opened.

Management described a combination of:

• regular in-person visits,

• online meetings and checks,

• operational reviews,

• customer feedback monitoring,

• and recurring communication with individual franchisees.

The company has also built a dedicated internal team focused specifically on maintaining quality across the franchise network.

This becomes increasingly important as FitEasy scales. With hundreds of locations operated by different franchisees, maintaining a consistent customer experience is significantly more difficult than when operating a small network directly.

Management also indicated that if the quality of a particular service or location begins to deteriorate after several months or years, the company tries to identify the problem and work directly with the franchisee to improve it.

Our take: Our broader impression throughout the call was that FitEasy still behaves like a relatively young brand that is constantly trying to improve its model.

Management did not give us the impression that it has simply found a successful concept and is now trying to replicate it as quickly as possible. Instead, there appears to be a continuous feedback loop between headquarters, franchisees and customers. When something does not work as intended, they try to change it.

We particularly liked that FitEasy already has a dedicated team focused on maintaining standards across the franchise network. As the company moves toward hundreds and eventually potentially 1,000+ locations, we believe this function will become increasingly important.

The key risk of any rapidly expanding franchise business is that growth eventually comes at the expense of quality. What we heard from management suggests that they are aware of this risk and are actively building the infrastructure required to manage it.

11. Franchise Fees & Take Rate

This was probably the most important new information for us in this section of the call.

Based on management’s explanation, franchisees pay FitEasy approximately ¥500 per member per month from membership fees.

With a typical monthly membership price of roughly ¥7,000, this represents only about:

¥500 / ¥7,000 = ~7.1%

of gross membership revenue.

There are additional economics for FitEasy beyond this base fee, including marketing-related fees, fixed store fee and revenue associated with certain additional services. Based on what we currently understand, we estimate that FitEasy’s effective overall take rate could be somewhere around 10–12% of franchise revenue.

We would still like to verify the precise structure of all additional fees, so the 10–12% figure should be viewed as our estimate rather than explicit company guidance.

Nevertheless, the call clarified that the economics appear materially different from our previous assumption. Before speaking with management, we had estimated that FitEasy might effectively capture something closer to 15–20% of franchise revenues.

Our take: This was a surprisingly positive finding for us.

We had already suspected before the call that something might be missing from our previous calculation, because a 15–20% effective take rate seemed relatively aggressive. Management’s explanation suggests that the actual economics are considerably more franchisee-friendly.

The core membership fee alone represents only about 7% of membership revenue, and even after including other economics, our current estimate of the overall take rate is closer to roughly 10–12%.

We actually prefer this.

If FitEasy were already extracting 15–20% of franchisee revenues, we would question how much room remained to improve central economics without putting pressure on franchisees. An excessively high take rate could eventually undermine franchisee returns, make new locations less attractive and weaken the very pipeline that enables FitEasy to grow.

Instead, the current structure appears to leave meaningful economics with the franchisee while still creating an attractive, highly scalable revenue stream for FitEasy.

PART IV: COMPETITION

12. chocoZAP as a Market Expander Rather Than a Direct Competitor

One of the topics we specifically wanted to discuss with management was chocoZAP, which has been expanding extremely rapidly across Japan and could, at first glance, appear to be one of the biggest competitive threats to FitEasy.

Interestingly, management’s view was almost exactly aligned with the way we had been thinking about and modeling the competitive landscape — without us first suggesting our interpretation to them.

Management does not primarily view chocoZAP as a direct competitor. Instead, they believe it is helping to bring entirely new customers into the fitness market.

chocoZAP operates at a much lower price point and has invested heavily in nationwide marketing. As a result, it attracts many customers who previously did not regularly exercise or had never been members of a gym.

Over time, however, some of these customers become more engaged with fitness and begin demanding:

• better equipment,

• more space,

• cleaner and higher-quality facilities,

• a better overall environment,

• and a broader range of fitness, wellness and entertainment services.

At that point, management believes some of them naturally upgrade from chocoZAP to concepts such as FitEasy.

Our take: This was one of the most positive confirmations from the entire call.

We had already developed essentially the same thesis before speaking with management: rather than viewing chocoZAP’s rapid expansion purely as a competitive threat, we believed it could actually create a positive externality for FitEasy.

chocoZAP is currently spending heavily on marketing and rapidly opening locations across Japan. In effect, it is spending its own capital to convince a much broader segment of the Japanese population to start going to gyms.

If even a portion of those customers eventually develop higher expectations and move toward a more comprehensive offering, FitEasy can become a natural upgrade path.

The fact that management independently described essentially the same customer journey gave us greater confidence in this thesis. Rather than hurting FitEasy, the continued rapid expansion of chocoZAP could therefore actually become a structural tailwind for the company by expanding the overall addressable fitness market.

13. Anytime Fitness as the More Relevant Competitor

Management views Anytime Fitness as a much more direct competitor.

This makes intuitive sense. The two concepts are significantly closer in terms of:

• pricing,

• 24/7 accessibility,

• target customers,

• and the type of customer who regularly uses a gym.

The key difference, according to management, is the value customers receive for a broadly comparable membership price.

FitEasy locations can include additional services such as saunas, golf simulators, relaxation areas, coworking spaces and various entertainment or wellness features depending on the individual location.

Management discussed an example where FitEasy opened a location close to an Anytime Fitness club and subsequently saw customers switching to FitEasy. Their interpretation was that customers were attracted by the broader range of value-added services available at a similar price point.

Our take: We spent quite a lot of time discussing Anytime Fitness because, in our view, this is the most relevant benchmark for understanding FitEasy’s competitive positioning.

The example management gave us about customers switching from a nearby Anytime Fitness location was particularly interesting because it supports one of the central parts of our original thesis: FitEasy is not simply another 24/7 gym.

Its differentiation comes from offering significantly more than traditional gym equipment for a relatively comparable membership price. Saunas, golf simulators and the broader ecosystem of additional services may look secondary when viewed individually, but management’s comments suggest that customers actually value them enough to influence where they choose to exercise.

We also looked at the recent financial development of Fast Fitness Japan, the operator of Anytime Fitness in Japan. The picture has been considerably weaker than FitEasy’s. Despite efforts to grow the business and attract customers, operating margins have been under pressure, declining by roughly 100–200 basis points annually in some recent periods, while operating profit eventually stagnated and then declined.

That contrasts sharply with FitEasy, where revenue, membership, store count and operating profit have all been expanding rapidly. In our view, the divergence between the two businesses is another indication that FitEasy may be taking share within the higher-quality 24/7 fitness segment rather than simply benefiting from growth in the overall market.

Fast Fitness Japan was subsequently taken private, so we will unfortunately have less public financial data available for future comparison. Nevertheless, its historical results provide a useful benchmark and, in our view, reinforce the idea that the two concepts have recently been moving in very different directions.

14. Google Ratings & Customer Experience

To independently test whether FitEasy’s broader service offering actually translates into a better customer experience, we also conducted our own analysis of Google Maps ratings across the three major concepts: FitEasy, Anytime Fitness and chocoZAP.

Rather than relying on a handful of individual locations, we collected ratings from at least roughly 50 locations for each brand and compared the distributions across the three chains. We then calculated summary statistics and created histograms to see not only the average rating but also how consistently individual locations performed.

The tables and histograms below show the results of our analysis.

The overall picture was relatively clear:

• chocoZAP performed by far the weakest, with many locations clustered around relatively low ratings and an overall level around the three-star range.

• Anytime Fitness performed considerably better and represents a much more credible comparison with FitEasy.

• FitEasy generally achieved the strongest ratings of the three, while also showing relatively consistent customer satisfaction across locations.

Our take: We consider this particularly useful because Google ratings provide an independent datapoint outside management’s own commentary.

The results broadly support what management told us during the call. chocoZAP appears to succeed primarily through accessibility, low pricing and aggressive expansion rather than through a superior in-store experience. This is consistent with our view that it can introduce customers to fitness without necessarily preventing them from later upgrading to FitEasy.

Anytime Fitness is clearly a stronger competitor, but even there, FitEasy generally performed somewhat better in our sample.

Of course, Google reviews are not a perfect measure of customer satisfaction and should not be overinterpreted. However, when combined with FitEasy’s membership growth, franchisee demand, lack of store closures and management’s comments about customers switching from competing gyms, we think they provide another useful piece of evidence that FitEasy’s value-added service strategy is genuinely resonating with customers.

We also noticed that individual FitEasy locations and franchisees frequently respond directly to customer reviews. Combined with what management told us about its dedicated quality-control team and regular communication with franchisees, this reinforces our impression that customer feedback is actively monitored rather than ignored.

Overall, our work on the competitive landscape left us more positive rather than less positive after the call.

PART V: CUSTOMER RETENTION, CHURN & SERVICE QUALITY

15. Churn

Management stated that FitEasy’s monthly churn is approximately 3%. In simple terms, a 3% monthly churn rate implies an average membership lifetime of roughly 33 months, or about 2.8 years (1 / 3% ≈ 33 months). The actual cohort-based retention dynamics can of course be more complex, but this provides a useful approximation of how long an average member stays with FitEasy.

At first, the number sounded relatively high to us and was one of the few datapoints from the call that initially appeared somewhat negative. However, after putting it into the context of the broader fitness industry, our view changed quite significantly.

Churn in the gym industry is structurally high. Industry benchmarks vary substantially depending on the business model, but monthly churn of 4–8% for traditional/full-service gyms and even 8–12% for some budget and low-cost concepts is not unusual. Boutique and more engagement-focused concepts tend to perform better, with churn sometimes in the 2–6% range.

For context:

• FitEasy: ~3% monthly churn

• Traditional / full-service gyms: often ~4–8%

• Budget / low-cost gyms: often ~8–12%

• Boutique studios: often ~2–6%

Management also told us that FitEasy’s churn is among the lowest in the Japanese market. According to their information, chocoZAP is meaningfully above 5%, while Anytime Fitness Japan is also higher than FitEasy and at least 5%.

Our take: The ~3% monthly churn initially looked relatively high to us. After comparing it with typical fitness-industry churn and discussing competitors with management, however, we actually came away viewing this number quite positively.

If management’s competitor estimates are broadly correct, FitEasy appears to have a meaningful retention advantage. This would also fit well with the other evidence we have seen — stronger Google ratings, broader value-added services and management’s comments about customers moving from competing concepts toward FitEasy.

We would still like to monitor churn over time, particularly as the network scales rapidly, but at the current level we no longer see it as a significant concern.

16. Customer Feedback and Quality Control

FitEasy has a dedicated process and team responsible for monitoring customer feedback and maintaining service quality across the network.

Management described regular communication with franchisees and active intervention when individual locations experience operational problems. This becomes increasingly important as the network expands because maintaining consistent standards across hundreds of franchised locations is naturally more difficult than managing a small number of clubs.

One example from the call particularly stood out.

A recent earthquake had occurred essentially the same day or shortly before our conversation, and management was already aware of an issue involving the warning or information system in one of the club’s sauna areas. They told us that the company had immediately started addressing the issue and was working on corrective measures.

Our take: This relatively small example actually made one of the strongest impressions on us during the call.

The earthquake had happened extremely recently, yet the issue had apparently already been communicated internally and the company was working on a response. Even the person helping with investor communication knew about the specific operational issue and could discuss it with us.

To us, this suggested that customer and operational feedback does not simply disappear somewhere inside a rapidly growing franchise organization. Information appears to travel through the company quickly, and management seems genuinely focused on continuously improving the concept.

That matters because one of the biggest risks to FitEasy’s rapid expansion is deterioration in service quality as the network becomes larger. There are already occasional complaints in Google reviews regarding cleanliness, older equipment or maintenance at certain mature locations. The important question is therefore not whether individual problems occur — they inevitably will — but how quickly the organization identifies and fixes them.

Based on our conversation with management, we came away more confident on this point.

PART VI: VALUE-ADDED SERVICES AND MONETIZATION

17. Personal training — potentially a major new high-margin revenue stream

One of the most surprising and potentially important takeaways from the call was the economics of FIT-EASY’s recently launched personal training offering.

The service is still at a very early stage. Management mentioned approximately 5,000 personal-training users compared with a total membership base of roughly 300,000, implying penetration of only around 1.5–2%.

A personal training session costs approximately ¥8,000–¥10,000, depending on the package purchased, with the per-session price declining for larger packages.

What surprised us significantly was the revenue split described during the call:

• approximately two-thirds of the session fee goes to FIT-EASY

• approximately one-third goes to the trainer

We spent quite a bit of time discussing this because the economics sounded almost surprisingly attractive. Importantly, this answer came directly in English from the other FIT-EASY team member on the call rather than through translation. We asked for clarification, and he appeared confident that we had understood the structure correctly.

Nevertheless, given how material this could become to our investment thesis, we intend to confirm the exact economics with the company again by email.

Our take: If we understood the economics correctly, personal training could become one of the most important incremental profit drivers for FIT-EASY over the next several years. At a ¥9,000 session price, a two-thirds share would imply roughly ¥6,000 of revenue to FIT-EASY from a single session. At the upper end, this could approach ¥7,000 per session. For comparison, FIT-EASY receives only around ¥500 per member per month from the core franchise membership fee. In other words, a single personal-training session could generate roughly 12–14x as much revenue for FIT-EASY as one month of the basic per-member franchise fee.

The comparison is not perfectly like-for-like, of course, but it illustrates the potential magnitude of the opportunity.

Even if the economics ultimately prove somewhat less attractive than we understood on the call, we would still view the service as highly positive. Penetration is currently low, the service has only recently been launched, and incremental revenue should carry attractive margins relative to the core business.

FIT-EASY itself also plays an active role in sourcing trainers and connecting them with its clubs, making personal training more of a centrally organized service than many of the other value-added offerings.

For us, this was one of the most bullish incremental pieces of information from the entire call. It also provides a potential explanation for how FIT-EASY can continue expanding margins over time even while keeping its basic membership pricing competitive. The company is effectively building additional monetization layers on top of an already rapidly growing membership base.

18. Other value-added services

Personal training is only one component of a much broader ecosystem FIT-EASY is building around its core gym membership.

Depending on the location, clubs can offer services such as saunas, golf simulators, karaoke, wellness facilities and various other leisure offerings. There are also opportunities around merchandise, supplements, protein products and other fitness-related products.

The direct economics for FIT-EASY headquarters are likely less significant for many of these services than for personal training. A larger portion of the benefit may accrue to franchisees, although FIT-EASY can still earn margins on centrally supplied products and services.

However, we do not think direct monetization is necessarily the most important point.

Our take: The primary value of many of these services is that they make the membership itself more attractive. They improve customer experience, differentiate FIT-EASY from conventional 24/7 gyms, potentially reduce churn and make it easier to attract members from competitors.

This also reinforces our impression of the company as a relatively young and dynamic organization. Management appears willing to experiment with new services, evaluate customer response and continuously adjust the offering rather than operate a static gym concept.

19. Mobile application and AI trainer

The mobile application is another important part of this strategy.

FIT-EASY is developing an AI-based trainer that can increasingly use member data to provide personalized recommendations around areas such as:

• exercises and workout selection,

• training plans and progress,

• nutrition,

• lifestyle and health,

• and potentially exercise technique and form.

As FIT-EASY is still a relatively young company, the amount of proprietary user data available to train and improve these systems should continue increasing alongside the membership base.

Management currently does not appear focused on charging an additional subscription for the AI functionality. Instead, the application is primarily intended to make the existing membership more valuable and improve engagement and retention.

Our take: We think this is the right approach at the current stage. FIT-EASY does not need to monetize every feature separately. If an AI trainer, nutrition recommendations or other digital services make a ¥7,000 membership materially better than competing memberships at a similar price, the economic benefit can come indirectly through higher membership growth, better retention and stronger unit economics. Direct monetization can always become an option later.

20. Why management does not want to raise membership prices — at least for now

We specifically discussed the possibility of increasing membership fees as FIT-EASY continues adding more services.

We had previously thought this could become another relatively straightforward driver of same-store sales growth. Management, however, currently appears reluctant to pursue meaningful price increases.

Instead, the strategy is to keep membership pricing broadly stable while continuously increasing what customers receive for that price.

The objective is to widen the value proposition versus competitors and make FIT-EASY increasingly attractive relative to traditional 24/7 gyms.

Our take: Initially, we had expected pricing to become a larger monetization lever as the service offering expanded, so this was slightly different from our expectations. However, we are comfortable with the strategy. FIT-EASY is still in the land-grab phase of building its network and brand. If keeping prices stable helps accelerate membership growth, take customers from competitors and improve retention, maximizing pricing today may not be optimal.

PART VII: MARGINS, OPERATING LEVERAGE AND GUIDANCE

21. Why earnings should grow faster than revenue

We spent a meaningful part of the call discussing margins and operating leverage. This was probably the area where communication was the least precise, largely because the more technical financial questions had to be translated to the CFO through the other FIT-EASY team member.

We specifically asked why, if management expects margins to remain broadly stable, profit guidance is growing faster than revenue.

The explanation ultimately came down to several factors.

First, membership growth has been stronger than originally expected. In a franchise model, every additional member generates incremental revenue for FIT-EASY without requiring a proportional increase in central costs.

Second, a meaningful portion of corporate G&A is relatively fixed. As the number of clubs and members grows, central expenses do not need to grow at the same pace, naturally creating operating leverage.

Finally, newly introduced services such as personal training can add incremental, potentially very high-margin revenue on top of the existing membership base.

Our take: While the answers around margins were not as precise as we would have liked, they actually reinforced our existing view. Management talks about keeping margins broadly stable, but the underlying economics appear inherently scalable. More members, more franchise locations and new monetization streams are being layered onto a central cost base that does not need to grow proportionally.

This is also effectively what management described when we asked why profit is already growing faster than revenue this year: membership has exceeded their original expectations, new services such as personal training are contributing, while a meaningful portion of G&A remains fixed.

For this reason, we continue to believe earnings can grow faster than revenue even if management does not explicitly target margin expansion.

22. Management remains focused on growth rather than maximizing margins

Management repeatedly emphasized that maximizing near-term margins is not the priority.

Instead, FIT-EASY wants to reinvest into:

• opening and supporting more locations,

• developing the mobile application,

• launching additional services,

• supporting franchisees,

• improving customer experience,

• and strengthening the brand.

Management therefore currently assumes relatively stable margins rather than building significant operating leverage into its longer-term targets.

Our take: We believe this assumption is probably too conservative. The company does not necessarily need to actively pursue margin expansion for margins to expand.

If revenue and membership continue growing materially faster than central G&A, operating leverage should emerge naturally. Personal training and potentially other centrally monetized services could add another layer of high-margin revenue.

In other words, management can continue prioritizing growth while margin expansion happens almost as a by-product of scaling the platform.

23. Guidance appears conservative, at least on margin

We also asked management directly about the conservatism of its guidance.

Our interpretation of the discussion was that FIT-EASY sets targets at levels management believes it can confidently achieve, rather than incorporating everything that could go right.

This is consistent with what we have observed from the company historically. FIT-EASY has never lowered its guidance since we started following the company. Instead, it has repeatedly raised guidance during the year and ultimately exceeded its initial expectations.

Importantly, the current targets are already ambitious. Nevertheless, management’s comments gave us the impression that it still sees the published guidance as achievable and potentially conservative.

Our take: This was another positive takeaway from the call. We would not interpret the discussion as management formally promising another guidance beat. However, both its comments and its historical behavior support our view that the company’s internal expectations are deliberately cautious.

The most interesting discrepancy remains profitability. Official assumptions appear to imply relatively limited margin expansion, while the actual mechanics management described — stronger membership growth, relatively fixed G&A and additional high-margin revenue streams — point in the opposite direction.

Therefore, our base case remains that profit growth can continue to outperform revenue growth, potentially meaningfully.

PART VIII: THE CAFÉ CONCEPT — A SMALL EXPERIMENT WITH A POTENTIALLY MUCH BIGGER IMPLICATION

24. The first FIT-EASY café

FIT-EASY plans to launch its first café concept in September.

For now, management clearly views this as an experiment rather than a meaningful earnings contributor. The first location will allow the company to test the concept, understand customer behavior and refine the operating model before considering broader expansion.

Based on our discussion, we would not expect cafés to become a financially significant contributor anytime soon — potentially not for at least the next several years. We therefore assign essentially no value to the concept in our near-term investment case.

Potential synergies with the existing FIT-EASY ecosystem are relatively straightforward: healthy food, coffee and beverages, wellness positioning, the existing membership base, the app and potentially a shared loyalty ecosystem.

However, what interested us most was not the café itself.

Our take: The more important takeaway was management’s confidence in its ability to build and operate franchise businesses.

FIT-EASY increasingly appears to view its core competency as something broader than simply operating gyms. Management believes it has developed expertise in building brands, designing attractive unit economics, recruiting franchisees, supporting them operationally and scaling franchise networks across Japan.

The café is therefore interesting as the first potential test of whether this capability can be transferred into another vertical.

If FIT-EASY eventually approaches maturity in its domestic fitness business, management could potentially use the same franchise infrastructure and know-how to launch entirely new concepts.

This is not something we include in our valuation today, and the café itself is unlikely to materially affect earnings over the next few years. But as a long-term optionality, we find it very interesting. If management can prove that the franchise-building playbook works outside fitness, FIT-EASY could ultimately become more than a fitness chain — it could become a platform for building multiple franchise businesses.

For now, that remains optionality rather than part of our core thesis. But it provides another potential growth lever if the core Japanese fitness opportunity eventually begins to mature.

Conclusion

Thank you very much for reading all the way to the end.

This was a long call — we spoke with FIT-EASY’s management for roughly an hour and a half, and we genuinely appreciate how much time they gave us. We kept asking questions, often going into considerable detail, and they were patient and willing to discuss virtually everything we brought up. As you can probably tell from the length of this write-up, even this is only a condensed summary of the conversation.

Overall, the call strengthened our investment thesis. Not every answer was perfectly clear, particularly where more technical financial questions had to be translated, but several of the key risks we wanted to investigate came out better than we had expected. The franchise pipeline appears very strong, management remains confident in the runway for store openings, competitive dynamics look favorable, and we see several additional monetization opportunities that could become increasingly important as the network scales.

At this point, we believe our original FIT-EASY thesis, together with this management call, provides a fairly comprehensive picture of why this remains our largest position.

We also want to thank everyone for the incredible response to our original research. More than 60,000 people have already seen the thesis on X, while more than 1,000 readers have opened the full write-up here on Substack. We received a large number of thoughtful comments, questions and counterarguments, and we genuinely appreciate all of them.

What we still want to verify

Our due diligence is not finished. There are several points from the call that we want to clarify directly with management in writing.

Most importantly, we want to better understand the exact structure of franchise fees so that we can calculate FIT-EASY’s true all-in take rate more precisely.

We also want to reconfirm the economics of personal training, particularly the revenue split between FIT-EASY and the trainers. The economics described during the call sounded exceptionally attractive, so despite asking about it several times, we would prefer to have the structure confirmed in writing before incorporating it fully into our estimates.

Another area we want to investigate further is the maintenance and operating quality of older locations. This was one of the more recurring criticisms we identified in our review of Google ratings. Management appears very aware of the issue and described several initiatives aimed at maintaining standards across the network, but we want to understand whether the improvement is actually visible at the store level.

Finally, we will likely follow up on margins and operating leverage. This was probably the part of the call where the language barrier mattered most, and we would like to ask the questions again in writing to better understand management’s expectations for profitability as the network scales.

Fortunately, management explicitly offered to continue the conversation by email. They were extremely open and friendly throughout the call and also seemed genuinely pleased that we had published detailed research about FIT-EASY for an English-speaking investor audience.

If you have questions for management, send them to us

If there is anything you would like us to ask FIT-EASY management, leave your question in the comments or send us a direct message. We will be happy to include the most interesting questions in our follow-up with the company.

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Follow-up with management: several important clarifications:

Following our call, we continued communicating with FIT-EASY’s management team to clarify several points that were not entirely clear to us. The answers actually made us more bullish on the earnings potential of the business, and we are currently working on an updated model incorporating these additional revenue streams and the operating leverage management has now explicitly confirmed.

Personal training could become a meaningful high-margin revenue stream

One of the most interesting clarifications concerns the recently launched personal-training business. For a ¥10,000 session at a directly operated club, approximately ¥7,000 goes to FIT-EASY and ¥3,000 to the trainer. At franchise locations, the trainer still receives ¥3,000, while the remaining ¥7,000 is split equally between FIT-EASY and the franchisee, leaving ¥3,500 per session for FIT-EASY.

Management previously told us that roughly 5,000 members are already using personal training. Even under a deliberately conservative assumption that all of these customers train only at franchise locations and purchase just one session per month, this would generate roughly ¥210m of annual revenue for FIT-EASY. At two sessions per month, that becomes approximately ¥420m annually. Directly operated stores are considerably more attractive economically, as FIT-EASY retains ¥7,000 per ¥10,000 session.

We believe this revenue should also carry very attractive incremental margins. More importantly, based on our discussions with management, personal training does not appear to be meaningfully reflected in the current official guidance. With more than 300,000 members and only around 5,000 currently using the service, penetration is still very low, leaving substantial room for growth.

Management confirmed our operating-leverage thesis

This was probably the most important confirmation for our model. Management explicitly told us that the operating leverage we have been expecting is already working: as the membership base and store network expand, corporate overhead is declining as a percentage of revenue, and they expect operating margins to continue trending upward even while the company remains in an aggressive investment and expansion phase.

In other words, management expects profitability to grow faster than revenue, with potentially even higher margins once the business eventually reaches a more mature stage.

This is particularly interesting because the official guidance still looks conservative relative to this dynamic. If revenue continues to outperform while margins expand at the same time, we believe there is meaningful room for FIT-EASY to outperform current consensus earnings expectations.

Same-store membership growth is approaching a natural ceiling

One point that was more neutral was existing-store membership growth. Management confirmed that roughly 1,000 members per club is a reasonable level around which the average should eventually stabilize. Rather than allowing successful locations to become overcrowded, FIT-EASY intends to use its dominant-store strategy and open additional clubs nearby.

We therefore would not extrapolate the recent double-digit existing-store membership growth indefinitely. The growth engine should gradually shift from continuously adding members to mature clubs toward opening more locations within already proven catchment areas. We do not view this negatively—it simply changes where future system growth comes from.

The construction license could be much more important than we initially thought

The biggest positive surprise was management’s explanation of the recently obtained construction business license.

FIT-EASY can now contract construction work more directly rather than relying on third parties to coordinate the entire process. Management expects this new structure to increase revenue associated with each new club opening by up to approximately 1.5x, while generating a gross margin of around 20% on the additional construction-related revenue.

The rollout only began in July, so the current fiscal year should capture very little of the benefit. More importantly, management expects approximately 60% of new club openings next fiscal year to use the new structure.

On a rough basis, if 60% of openings generate 50% more development revenue, that alone implies approximately a 30% uplift to development revenue versus the previous structure, before considering continued growth in the number of openings themselves. Depending on the revenue mix, we estimate that the impact on consolidated revenue could eventually be meaningful—potentially in the mid-to-high teens percentage (15 - 20 %) range versus a scenario without the construction initiative.

This is one of the reasons we believe current forward estimates may prove too conservative. The market is primarily modeling the existing business, while several newer monetization layers are only beginning to contribute.

A correction to our previous franchise take-rate estimate

We also want to correct something from our previous write-up. We previously mentioned a potential franchise take rate of around 18–20%, which now appears to have been too high due to our misunderstanding of some of the underlying economics.

Management clarified that FIT-EASY receives approximately ¥500 per member per month, plus a ¥100,000 monthly system-supervision fee and a ¥50,000 monthly advertising contribution from each franchise location. Management understandably declined to disclose an explicit overall take rate as a percentage of franchisee revenue.

Based on the economics they provided, however, we estimate that the effective take rate is closer to ~10% of franchise revenue, depending on membership and revenue per club. The membership-linked royalty itself appears to represent roughly 7%, with the additional fixed monthly fees taking the effective rate somewhat higher.

We wanted to correct this explicitly because our earlier 18–20% estimate was too aggressive. Importantly, however, this clarification does not change our overall thesis—the franchise economics remain highly attractive given FIT-EASY’s capital-light exposure to the growth of the network.

Why we are even more bullish after these answers

Taken together, these clarifications make us more optimistic about FIT-EASY’s earnings trajectory than we were after the original management call.

The existing-store membership story is becoming more mature, but almost everywhere else we see additional upside: personal training is only beginning to monetize the membership base, operating leverage is developing exactly as we hoped, the construction license introduces a potentially meaningful new revenue and profit stream, and the company continues to accelerate new-club openings.

Most importantly, several of these drivers appear to be only partially—or potentially not at all—reflected in current guidance and consensus estimates.

We therefore think there is a meaningful probability that FIT-EASY will once again outperform current expectations. We are now updating our model to incorporate these new economics in more detail, particularly the construction business, personal training and the margin progression. With the stock still trading at what we consider a very attractive valuation relative to its growth profile, FIT-EASY remains one of the positions we are most optimistic about.

Arrow Exploration is a profitable, debt-free Colombian oil producer that trades at a market cap barely above its net cash plus the next two years of expected free cash flow. With essentially no hedging, every dollar of Brent flows almost straight through to the bottom line – directly benefiting from recent oil price shocks. Large cash position, 40%+ FCF yield and multiple catalysts with significant upside potential on top. And the single biggest overhang on the stock just took a real step toward resolution with Colombia's recent election.

What do they do?

Arrow is a junior oil & gas producer focused on Colombia’s Llanos Basin, where its flagship asset, the Tapir Block, generates the large majority of production and cash flow, alongside a much smaller legacy asset base in Western Canada. Current production runs roughly 5,000–5,500 boe/d, of which more than 95% is oil. That last detail matters: unlike many small producers whose economics get muddied by weak natural gas pricing, Arrow’s story is almost entirely a clean bet on the price of oil with multiple upside catalysts on top.

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Why Arrow Is the Purest Way to Play Higher Oil Prices

Most producers hedge a portion of future production, capping their downside but also giving away much of the upside when prices rise. Arrow does the opposite – it runs with essentially no meaningful hedging book, so almost every incremental dollar of Brent drops straight into cash flow.

A few numbers that show just how much leverage that creates:

• Per Hannam & Partners, each additional $1/bbl of Brent adds roughly $1.9M to Arrow’s annual EBITDA. At current production of 5,000–6,000 bbl/d, that’s a meaningful swing for a company of this size.

• Operating netback (operating profit per barrel) currently runs around $35–40/boe at Brent in the $70–80 range – a large share of every incremental oil dollar ends up as operating profit rather than being eaten by costs.

• The company holds net cash of $27M (we estimate it is already around $35M today) and no debt, which means virtually all of that operating leverage flows to equity holders rather than lenders.

To make the leverage concrete, here’s a sensitivity analysis we ran showing the impact of different oil prices and current cost structure on Arrow’s cash flow netback (basically OCF per barrel):

Multiplying that with the expected production this year (about 5,000–5,500 boe/d), we arrive at the operating cash flow Arrow might generate annually:

Even after subtracting $24M for capex (company guidance for this year), Arrow is on track to generate over $40M of FCF this year. And the market is currently valuing the whole company at just around $100M.

So, to sum it up, Arrow today has a $100M Market Cap, ~$35M of cash, no debt, and is on track to generate over 40% of its market cap in FCF just this year.

Even at Brent $70 – well below where oil has traded for much of the past year – Arrow could generate almost 20% of its current market cap in free cash flow – that is a remarkable amount of cash generation relative to the price being asked for the equity today.

Three Reasons the Market Hates Arrow – And Where’s the Opportunity

We think there are three main reasons Arrow trades where it does:

1. Size. With a market cap around $100M, it sits below the radar of most institutional investors entirely.

2. A blanket Latin America discount. Many investors apply a generic risk discount to anything domiciled in the region without digging into the specifics of the situation.

3. The Tapir license. This is the big one. Tapir hosts the heart of Arrow’s production, but the current license expires in early 2028, and part of the market fears it simply won’t be renewed.

That third point is legitimate on the surface, but it looks considerably less scary once you dig in:

• Management continues to invest tens of millions of dollars into new wells and infrastructure at Tapir. That kind of ongoing capital commitment would make little economic sense if leadership genuinely believed renewal was unlikely.

• The political backdrop is shifting. A rightward political wave has been moving through Latin America (Argentina under Javier Milei being the clearest example), and Colombia was next in line for elections.

• That election has now happened. In June 2026, right-wing candidate Abelardo de la Espriella narrowly won Colombia’s presidential runoff, ending four years of Gustavo Petro’s leftist, anti-hydrocarbon government. De la Espriella has campaigned explicitly on reopening oil and gas exploration, reversing Petro’s moratorium on new hydrocarbon contracts, and pushing Colombia’s national oil production sharply higher.

wrote a great writeup about the current developments, fittingly named “Investors Are Underappreciating How Positive Espriella Will Be For The Colombian Energy Sector“. You can read it here:

HFI Research

(Idea) Investors Are Underappreciating How Positive Espriella Will Be For The Colombian Energy Sector

Neglect, dislike, or whatever you want to call it, investors in the energy sector are completely misreading the situation unfolding in Colombia. Following Abelardo de la Espriella’s victory on June 21, investors have seemingly responded to Colombian oil producers with a “meh…

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2 months ago · 33 likes · HFI Research

Notably, they conclude:

“Now that the old president is gone, Ecopetrol will embark on a new era of exploration and deal-making. There are 4 years of pent-up demand for deals that have been sitting in the back office, cluttered by bureaucracy. For the sake of due diligence, we have hired on-the-ground political consultants to inform us about the labyrinth we need to navigate in such a hostile political environment, and let me just say that it is more torturous than poking your own eyes with needles.

Under Espriella, his campaign was pro-hydrocarbons. He wants to restart oil and gas exploration, something Petro banned. He wants to issue new contracts, allow responsible fracking, offshore Caribbean oil and gas, and push Ecopetrol’s reserves higher. He stated in his campaign that he wants to push Colombian oil production from ~734k boe/d to 1.35 million boe/d. That’s not possible without the support of other operators.”

And we agree with this take.

Of course, a change like this doesn’t guarantee Tapir gets extended – but it meaningfully improves the odds, and removing even part of the political discount currently baked into the share price could re-rate the stock by a large margin, independent of anything happening to the oil price itself.

Arrow’s management has repeatedly stated that they believe the license extension should happen later this year following the elections. We think this matters a lot, because it’s a genuine one-off catalyst that’s largely disconnected from macro factors. If Tapir is extended on the terms we’d expect (likely a 5+5 year structure) we could easily see that news alone driving the stock 30–50% higher on its own.

There’s also a second-order angle worth noting: the new government wants to reverse Colombia’s oil production decline, and Ecopetrol – the inefficiently run state producer – is reportedly being pushed to collaborate more with private operators and offload licenses it isn’t using. Given Arrow’s strong balance sheet and cash reserves, it could be well placed to acquire additional attractive assets if that plays out.

Now, let’s look at the few “call options” that are associated with the company and that we think the market largely overlooks.

The Free Call Option Number One: Icaco

Beyond the license and the oil-price leverage, Arrow holds real exploration upside through its Icaco discovery, which has meaningfully changed the investment picture over the past several months. Initial results showed oil present across multiple formations at once, and subsequent flow tests came in well ahead of expectations. Management has since spudded a follow-up well, Icaco-2, aimed at establishing the true size of the discovery.

Several covering analyst houses raised their price targets after the initial results – Auctus Advisors, for example, has pushed its target as high as 50 pence per share post-Icaco. Longer term, management has talked about growing total production toward 10,000 bopd, roughly double current output. If Arrow gets anywhere close to that, the cash flow math we shown above essentially doubles.

This is connected to another important point of the thesis. The market is still worried that shareholders will never see the generated free cash flow due to high CapEx. However, we believe that higher oil prices and more favorable conditions in Colombia make it much more likely today that management will hit its target of around 10,000 barrels per day of production. And they have repeatedly stated that once they reach this level, the company doesn't want to grow any further. At that point, the priority will shift to buybacks and dividends – returning all excess cash to shareholders.

Downside Protection: Even the Bear Case Isn’t a Zero

The nice thing about this setup is that the pessimistic scenario still isn’t a wipeout. Assume Tapir simply isn’t extended and production begins declining as the license approaches its 2028 expiry, with no further exploration success and no growth. Even in that world, Arrow is already generating substantial cash flow today, and our estimates suggest the company could still accumulate roughly $70–80M of net cash by 2028 after CapEx – a figure that’s remarkably close to today’s entire enterprise value of the company.

In other words, a meaningful chunk of value gets created here even before the license question is resolved one way or the other, purely from cash the business throws off in the meantime.

What the Analysts Say

It’s notable that essentially every analyst house covering Arrow currently sees fair value well above where the stock trades:

• Hannam & Partners: risk-adjusted NAV of roughly 41p/share

• Zeus Capital: around 35p/share

• Auctus Advisors: raised to as high as 50p/share following the Icaco results

That implies upside in the range of roughly 50–100%+ relative to the prices at which these targets were published – and importantly, most of these models still use fairly conservative assumptions. They don’t fully credit a scenario of sustained high oil prices, further exploration success, or more aggressive production growth toward management’s 10,000 bopd target.

The Free Call Option Number Two: Geopolitics

On top of the base thesis, Arrow also happens to be one of the better-positioned small producers if tensions around the Strait of Hormuz continue to escalate (what sadly seems to be the case these days). Roughly a fifth of global oil consumption transits that corridor, and any disruption tends to push Brent sharply higher, even if only temporarily. Because Arrow carries no meaningful hedging, it would capture almost the full benefit of such a spike, unlike larger producers who have locked in forward prices and would only partially participate.

We’re not trying to predict macro events and are not basing the thesis on a Hormuz disruption – but it’s a real, underpriced call option sitting on top of an already-cheap, already-cash-generative business.

Risks

No investment is without risk, and this one has a few worth being direct about:

• A sustained decline in oil prices

• Non-renewal of the Tapir license

• Weaker-than-expected results from exploration wells

• Low liquidity and wide bid/ask spreads typical of a thinly traded small-cap

• Political instability in Colombia more broadly

• Natural production decline at existing fields, which requires continuous reinvestment to offset

That last point matters: Arrow isn’t a business with a decade of guaranteed flat production. It has to keep drilling to maintain and grow output (production per well shown below for illustration). The offsetting factor is that at current oil prices, the returns on that reinvestment are strong enough that it can all be funded from internally generated cash flow, without needing to raise external capital.

Conclusion

Arrow Exploration is one of the most interesting asymmetric setups we’ve come across in the energy sector. The market remains focused on political risk, the Tapir license, and a general dislike of small oil producers. What it’s overlooking is a company that generates exceptional cash flow, carries essentially no hedging, benefits directly from every move higher in oil prices, holds a strong net-cash balance sheet, has real exploration catalysts in front of it, and trades well below the fair value estimates of the analysts who actually cover it (including us).

If none of the positive catalysts play out, we think the current valuation already offers meaningful downside protection through cash generation alone. If even some of them do – higher oil prices, a Tapir extension, further Icaco success – the re-rating potential could be a multiple of where the stock sits today.

We are a Czech-based investment fund and research team focused on global small and mid-cap equities, compounders, and asymmetric opportunities.

Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses here on our Substack. If you enjoy deep fundamental research on companies with compelling upside potential, we’d love to have you join us and subscribe for our future posts:

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Disclaimer: This post is for informational purposes only and is not investment advice. It reflects the author’s personal views and estimates, which may be incomplete or incorrect. Do your own research and consult a qualified advisor before making investment decisions. The author/affiliated fund currently holds a position in $AXL.V and may buy or sell shares at any time.

Rising Stone is a perfect example of why we focus on small-caps: an underfollowed company with multiple structural advantages that make it a much higher quality business than its peers, yet trading at a lower valuation. Vertically integrated, founder-led, likely to triple net income over the next 3 years, yet trading at ~4x 2028 net income.

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What do they do?

Rising Stone is a niche developer of ultra-luxury real estate in the heart of the French Alps, specializing in the design, construction, and operation of high-end properties in the most prestigious resorts.

You can see all of their finished and upcoming projects on the company website.

We are very excited about this company because due to their small size and a very recent IPO, it is still almost undiscovered (zero mentions across X and Substack). Yet, we believe it won’t stay like that for long.

Why Is This a Good Business? Rising Stone Is Much More Than an Ordinary Homebuilder

The main competitive advantage lies in Rising Stone’s vertical integration. The company has in-housed the entire value chain – land acquisition, design, construction, project management, sales, and even recurring post-sale services like property management and luxury rentals.

Controlling every step gives them far better control over project execution and timelines. More importantly, it allows them to capture value at every layer rather than handing it off to third-party contractors. This shows up directly in their margins: in FY2025, Rising Stone delivered a 20.8% operating margin and a 14.2% net margin – in contrast to other French homebuilders that often barely get above 10% operating margin.

Beyond pure building capability, Rising Stone holds two crucial structural advantages: construction permits and land pipeline access.

Raw land in top Alpine resorts is extremely scarce, and local urban planning rules (Plans Locaux d’Urbanisme) create massive barriers to entry. Yet Rising Stone holds a long-term development pipeline of roughly €1 billion in projected volume through 2030 in elite locations where competitors can barely get approvals.

A big reason for this is their standing with local authorities. Municipalities prefer working with Rising Stone because of their proven expertise and strong track record. On top of that, Rising Stone’s model of managing and renting out properties on behalf of owners keeps beds occupied, driving local tourism and tax revenue – something local mayors love to see when handing out scarce permits.

The company has also developed a unique capability in complex refurbishments. A great example is “Le Fontany” in Méribel-Mottaret, where they took an older, legacy building at 1,850 meters and completely retrofitted it into a high-efficiency ski-in/ski-out residence. This skill allows them to acquire prime legacy sites where new ground-up construction is blocked, while positioning them well to benefit from the upcoming wave of reconstructions that will be needed to comply with stricter French energy-efficiency regulations coming into force (more on this point later).

The company also differentiates in how it balances emotional “lifestyle” buying with institutional-level asset management for their clients. By designing properties to maximize rental yields and offering managed rental structures, they allow buyers to reclaim the 20% French VAT on new-builds and heavy renovations.

Finally, Rising Stone targets an ultra-high-net-worth clientele, making the business far less cyclical than standard residential construction. Demand for trophy real estate in top-tier, high-altitude resorts remains resilient regardless of broader economic cycles or mortgage rate spikes.

The €1B Backlog Gives Clear Visibility Through 2028 and Beyond

The key point of the investment thesis is Rising Stone’s project pipeline. The company currently manages 15 development projects representing ~€1 billion in total volume (of which ~€438 million is directly attributable to Rising Stone). We estimate Rising Stone is on track to generate ~2/3 of its market cap in net income just by finishing the current pipeline (most of it in the next 3 years). And that obviously excludes any new projects that will be launched in the future.

Based on the pipeline, the company gave sales guidance of €75M in 2026, €100M in 2027 and €155M in 2028 (reaffirmed in the latest earnings release). It is also important to note that management expects projects in pipeline will achieve even higher margins than past development (resulting in 19% net margin guidance for 2028).

Notably, demand for these properties is so large that pre-sales rates often exceed 50% before construction actually begins and 70% during the construction phase. This gives us confidence that there should be no issue on the demand side. However, given the significant leverage used in land purchases (20% equity, 80% debt), the main question is whether the company will be able to complete projects on time. Still, based on their solid track record and the progress of individual ongoing projects, we believe this should not be a large concern.

Structural Trends Driving Long-Term Growth

Growing HNWI Population

Global inequality continues to widen, and there’s little reason to expect a reversal in the medium term. This means a lot of wealth will keep concentrating at the very top of the distribution. The population of high-net-worth individuals (HNWIs) is projected to grow by roughly 28% by 2028. For a business selling ultra-prime real estate to this exact demographic, that’s a real structural tailwind.

A genuine supply crunch

The supply side of the Alpine luxury market is arguably even more compelling than the demand side.

Land scarcity is already showing up in prices. Between 2019 and 2024, property prices in Courchevel rose more than 70%, and in Méribel more than 40% – a reflection of just how little buildable land remains in the most desirable resorts.

Regulation is closing the door on new supply. France’s Zero Net Artificialization (ZAN) law effectively bans construction on virgin land by 2050. In practice, this puts a hard cap on the long-term inventory of new ski-in/ski-out property at existing developed land.

Climate change is shrinking the map of viable resorts. Rising temperatures mean the “snow line” – the altitude above which snow cover is reliable – is expected to climb to 1,600–1,800m by 2040–2050. Climate risk is concentrated at low- and mid-altitude resorts, many of which will struggle to guarantee a ski season within a couple of decades. This effectively shrinks the pool of resorts that can credibly market themselves as “snow-sure” over a multi-decade investment horizon.

Rising Stone’s portfolio is positioned squarely on the right side of this divide. Its properties sit at altitude in some of the highest resorts in the Alps:

• Val Thorens: 2,300m

• Val d’Isère: 1,850m+

• Courchevel: 1,850m

• Méribel: 1,450m (center)

On top of that, every resort in which Rising Stone operates has more than 50% artificial snow coverage – a further hedge against natural snowfall variability.

Put together, this means Rising Stone’s resorts are likely to be among the last standing with a reliable ski season as the snow line rises – a durable competitive moat that’s becoming more valuable with each passing decade.

The Catalyst: A Coming Wave of Regulations & Renovations

A large share of Alpine real estate was built decades ago – much of it in the 1960s–70s, with another wave tied to the 1992 Albertville Winter Olympics. That aging stock is now colliding with a steady tightening of energy and construction standards, creating a substantial and growing pipeline of renovation and restructuring opportunities.

The numbers here are striking: roughly 75% of mountain homes carry an F, G, or E energy rating (with F/G alone accounting for 38%). Under France’s Loi Climat et Résilience, that’s about to become a serious legal problem for owners, not just an environmental one:

• Long-term rentals: G-rated buildings are banned from rental starting January 2025, F from January 2028, and E from January 2034.

• Short-term/tourist rentals: newly registered tourist rentals rated F or G have already been excluded from the market since late 2024, E-rated properties lose their eligibility in 2028, and by 2034 every tourist rental (new or existing) must carry a rating between A and D.

In other words, roughly 75% of homes in these resorts will need to be renovated within the next eight years simply to remain legally rentable.

This plays directly into Rising Stone’s hands. Per management, Rising Stone is currently the only player able to deliver renovations at scale in an Alpine environment – a logistically difficult context (short construction seasons, altitude, restricted access, specialized labor) that has kept the renovation market fragmented and underserved. The 2030 Winter Olympics in the French Alps should act as a further accelerant, likely pulling forward investment and renovation activity across the region as it did around Albertville in 1992.

Renovation is also a structurally attractive business line in its own right: asset-light relative to ground-up development, with shorter project timelines and faster capital recycling.

And this ties back to the scarcity dynamic already discussed. As trophy land becomes harder to find and new construction becomes more constrained by ZAN and altitude economics, renovation of the existing stock becomes not just a nice-to-have adjacent business, but arguably the more important long-term growth lever. This is reflected in how Rising Stone is actually deploying its IPO proceeds: rather than funding the current development pipeline (for which 65% of the required land is already secured), the capital raised will be used for acquiring additional land for future projects and for scaling up the renovation business.

Community aspect adds another competitive advantage

We believe this is one of the most underapreciated aspects of the whole story. Thanks to the post-sale services offered to clients (property management, handling rentals, etc.) and a dedicated “Club Premium” (a community with events for clients, private investors, advisors, bankers, etc.), Rising Stone has successfully created a unique network of individuals. And it already gives them a significant competitive advantage:

„Referrals from existing clients are now a major driver of growth: over 50% of new sales come directly from recommendations provided by previous buyers. Thus, the Group’s client base constitutes a strategic asset with significant intangible value, combining brand awareness, trust, and network benefits. It allows Rising Stone to benefit from a steadily decreasing marginal acquisition cost and a powerful and sustainable growth lever.“

Valuation & Financials

Looking at the future growth (which we consider achievable based on our analysis of the individual projects and their expected contributions) and margin profile, it is quite remarkable that the company is currently valued at a €130M market cap, representing a 9x P/E on this year’s expected earnings, and just 4.3x P/E on the 2028 base-case numbers.

To show how cheap that is, we did a quick comparison with other listed homebuilders (we took only those that are actually profitable). Clearly, almost all of them have much worse margins, barely grow at all, yet trade at higher valuations than Rising Stone. It is entirely possible Rising Stone could trade 50% higher just by re-rating to the same multiple as these peers. And we think that given its quality, it should actually trade at a premium – making us believe the company is significantly undervalued today.

(Yes, we know that P/E is not a perfect measure for homebuilders, but it nicely shows just how much undervalued Rising Stone is. And on a completely unrelated note, look at the comment column – damn, running a homebuilder in Europe is hard…)

In addition, the company set out a policy of paying out 40% of profits as dividend. Currently, that amounts to a 3.1% dividend yield and if the forward guidance is met, that could grow to almost 10% yield on current purchase price in the coming years. Quite compelling.

Management & Incentives

The company is being led by its founder, Jean-Thomas Olano, who still owns 51% of the company.

Following the IPO, his renumeration changed to a very modest salary of 1,000 euros per month (nice move, reminds me of Mark Leonard) combined with bonuses tied to the company hitting the net income targets it set in its guidance. Olano must also keep at least 25% of any vested shares in registered form until he leaves his role. We do like this setup as it is much better than what is typical for small-caps and homebuilders in general. Unfortunately, this bonus scheme applies only to the CEO and not remaining management.

Return Scenarios

Even though we believe Rising Stone will be able to beat its guidance targets, we are conservative and use the guidance as our base case.

In the table below, you can see that even with zero multiple expansion (keeping the TTM P/E at the current value of 13), we get to a market cap of €390M representing a 3x return in less than 3 years and a 55% IRR. Taking the optimistic scenario of €33M net income, combined with a multiple expansion to P/E of 16, Rising Stone gets to a €528M market cap, representing a ~4x return (74% IRR). And that doesn’t even include the dividends paid out over the three years, which together could reach about 20% of current capitalization.

Conclusion

What we see in Rising Stone is our favorite setup and it shows why we focus on small-caps: the company is illiquid, still unknown (last time we checked there were zero mentions on X and Substack) and has an undemanding valuation, despite being poised to grow significantly in the coming years. We believe the market currently underappreciates all the characteristics and competitive advantages of the company that make it a much better business than its peers.

The opportunity exists because Rising Stone is yet too small for funds and institutions to enter, but it won’t be like that forever. As it grows closer towards the €300M market cap mark, we should start to see more institutional buying, price discovery, and multiple re-rating on top of the earnings growth itself. If that happens, the potential returns could be very attractive. And that’s why Rising Stone is one of our highest-conviction ideas today.

We are a Czech-based investment fund and research team focused on global small and mid-cap equities, compounders, and asymmetric opportunities.

Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses here on our Substack. If you enjoy deep fundamental research on companies with compelling upside potential, we’d love to have you join us and subscribe for our future posts:

Subscribe now

Disclaimer: This post is for informational purposes only and is not investment advice. It reflects the author's personal views and estimates, which may be incomplete or incorrect. Do your own research and consult a qualified advisor before making investment decisions. The author/affiliated fund currently holds a position in $ALRIS and may buy or sell shares at any time.

We have. It is currently the largest core position in our portfolio.

And despite the stock appreciating after the latest results and guidance increase, we still see this as a very attractive opportunity – we continue to hold our full position and even added meaningfully before the latest earnings release. In this writeup we will present why.

Since this is our first post here on Substack, allow us to do a quick introduction before we dive into the company.

We are a Czech-based investment fund and research team focused on global small and mid-cap equities, compounders, and asymmetric opportunities.

Going forward, we’re planning to publish our detailed research, complete valuation models, portfolio updates, new positions, channel checks and multi-thousand-word investment theses here on our Substack. If you enjoy deep fundamental research on companies with compelling upside potential, we’d love to have you join us and subscribe for our future posts:

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We increased our position before earnings

A few weeks before the latest results we decided to significantly increase our position, to ~14 % of our portfolio on the cost basis. This wasn’t because we expected a “good quarter.” It was because we believed the market was dramatically underestimating what future guidance will the management provide.

Unlike many companies, FitEasy publishes monthly membership data, giving us a real-time picture of demand. By the end of May, the company had already reached roughly 274,000 members, while management’s full-year target was 300,000 members with approximately five months still remaining in the fiscal year.

In May alone, FitEasy added roughly 15,000 new members.

Looking at those numbers, it became increasingly difficult to construct a realistic scenario in which management would not raise guidance. Even if monthly member additions slowed materially, the company would still likely exceed its original targets.

The company subsequently did exactly what we expected:

• raised guidance,

• doubled full-year dividend,

• raised profit expectations by a lot more than revenue expectations.

In our opinion, the last point is actually the most important and it supports what has been the core of our investment thesis from the very beginning: FitEasy’s earnings should grow faster than revenue.

Why we believe the market still misunderstands the company

Most investors currently view FitEasy as simply another gym operator. We think that’s the wrong framework. In our opinion, FitEasy should increasingly be viewed as an asset-light franchise platform with multiple embedded growth engines rather than a traditional fitness chain.

Even more importantly, we believe the market is focusing on today’s reported margins instead of understanding how the revenue mix is likely to evolve over the next several years. Understanding this shift is key to seeing why this company should become a much more attractive businnes going forward.

Today, lower-margin equipment and development revenue represents a significant portion of sales because the company is opening new locations at an extraordinary pace. Many investors therefore conclude that margins are unlikely to improve significantly.

We believe exactly the opposite – as the installed franchise base grows, recurring franchise royalties should represent an increasingly larger share of revenue. Those revenues carry dramatically higher margins. That means operating profit should compound materially faster than revenue.

Notably, the latest guidance revision points exactly in this direction.

We believe management continues to guide conservatively

One observation we’ve made over the past several years is that management appears consistently conservative when setting expectations. This year wasn’t the first example.

Last year management also raised guidance during the fiscal year after originally setting fairly conservative expectations. We think the market may be relying too heavily on official guidance instead of independently modeling what the business could actually earn.

This is particularly important because FitEasy has very limited analyst coverage, so effectively, management guidance becomes market consensus. If management starts from conservative assumptions, consensus starts from conservative assumptions as well and that creates opportunities.

Why this is our largest core holding

Our investment philosophy is fairly simple.

We look for businesses where:

• the underlying company compounds for many years,

• valuation remains attractive,

• and the market misunderstands one or more structural drivers.

FitEasy checks every box.

Today the company trades at roughly 13x EV/EBIT, despite growing substantially faster than most listed fitness companies globally. Even more importantly, we believe several structural drivers have not yet begun contributing meaningfully to earnings.

Those drivers include:

• expanding franchise royalties,

• increasing monetization of existing members,

• AI-enabled services,

• higher-margin ancillary services,

• operating leverage,

• and a rapidly expanding ecosystem.

The market is mostly looking at today’s gym business. We are trying to understand what this company could look like three to five years from now. And we believe this difference creates an amazing opportunity – that’s why FitEasy remains our largest position.

In the next part we’ll explain why Japan may currently be one of the most attractive fitness markets globally, why penetration still remains dramatically below Western countries, and why we believe the industry’s runway is much longer than investors currently appreciate.

PART 2 – Why Japan? One of the most overlooked fitness markets in the world

One of the biggest reasons we invested in FitEasy has very little to do with FitEasy itself. It has everything to do with Japan. When investors think about Japanese demographics, they usually think about an aging population, slow GDP growth and a shrinking workforce. Ironically, many of those same trends create an extremely attractive environment for FitEasy.

The market is still dramatically underpenetrated

One statistic immediately caught our attention. Only a few years ago, gym penetration in Japan was roughly 3% of the population. Today that figure has approximately doubled to around 6%, but it still remains dramatically below developed Western markets.

For comparison:

• United States: roughly 20%

• Western Europe: roughly 15–20%

• Japan: approximately 6%

Even after the recent acceleration, Japan remains one of the least penetrated developed fitness markets globally. That matters because FitEasy doesn’t need to take significant market share from competitors in order to grow. The market itself is expanding rapidly. This is one of our favorite types of investments: A company operating in a market where the pie itself is getting much larger every year.

Why is Japan changing?

Historically, gyms simply weren’t part of everyday Japanese culture in the same way they are in North America. That has changed dramatically over the last several years. Several structural trends are now moving in the same direction.

1. Health awareness

Japan has one of the oldest populations in the world. Maintaining mobility, strength and overall health is becoming increasingly important. Fitness is gradually shifting from being viewed as a hobby to becoming part of preventive healthcare. That creates an enormous long-term tailwind.

2. Digitalization

Japan is rapidly adopting fully automated 24/7 gyms.

Many locations now operate with:

• facial recognition,

• automated access,

• cashless payments,

• minimal staffing.

This dramatically reduces labor costs while improving convenience. Members can visit literally any time of day. That flexibility is particularly valuable in Japan, where working hours tend to be longer and stricter than in many Western countries.

3. Labor shortages

Japan faces one of the tightest labor markets globally. Businesses that require fewer employees gain an important structural advantage.

FitEasy’s operating model is designed exactly for that environment. Automation allows the company to scale without proportionally increasing operating costs. That is another reason we expect margins to continue expanding.

4. Changing lifestyle and sports preferences

Another important trend is the shift in how younger generations approach sports. Traditionally, activities like judo, karate or baseball were far more popular than commercial gyms.

Today, people increasingly prefer flexible 24/7 fitness clubs that fit around busy schedules without requiring coaches or fixed class times. We believe this cultural shift is another structural tailwind supporting the long-term growth of fitness memberships in Japan.

FitEasy is not just an another gym

This is probably the single biggest misconception we see. Most investors compare FitEasy with traditional gyms but we think that comparison is quite off. Management is trying to build what they often describe as a lifestyle platform.

The goal is simple: Become the place people visit not only to exercise, but throughout their daily lives. Think about where people spend most of their time – at work and at home. FitEasy wants to become the “third place.” A place where members exercise… but also work, relax, recover and socialize. That distinction is incredibly important.

One membership. Many reasons to visit.

Instead of offering only workout equipment, FitEasy continues adding complementary services. Depending on the location, members may also have access to:

• golf simulators

• basketball courts

• bouldering

• beauty treatments

• self-care services

• oxygen capsules

• recovery rooms

• coworking spaces

• massage equipment

• wellness facilities

• karaoke

• arcade games

Management currently operates dozens of complementary concepts that can be integrated into different clubs. This dramatically changes the customer proposition. Members are no longer paying only for gym access – they’re buying access to an entire lifestyle ecosystem.

This creates a powerful network effect

One concern we initially had was whether opening locations close to one another would eventually cannibalize existing clubs. Interestingly, the data suggests the opposite. Because every location offers a different combination of services, additional clubs actually increase the value of the membership.

Imagine living in a city with several FitEasy locations.

Monday:
Train at the club with the wellness area.

Wednesday:
Visit the location with golf simulators.

Friday:
Go to another location with beauty services or coworking facilities.

All under the same membership.

Every new location effectively increases the number of experiences available to existing members. That is very different from a traditional gym chain. In our opinion, this network effect remains significantly underappreciated.

Social aspect & infrastructure

Another aspect that rarely receives attention is Japan’s social structure. Japan has one of the highest proportions of single-person households globally. Loneliness has become an increasingly important societal issue.

We think FitEasy benefits from becoming more than simply a place to exercise. It becomes somewhere people regularly visit, interact and spend time. Management appears to understand this extremely well.

Many of the additional services make perfect sense once viewed through that lens. They’re not random amenities. They’re designed to increase visit frequency, member engagement and ultimately customer lifetime value.

We believe the runway is still enormous

Today FitEasy operates roughly 300 locations. Yet given current penetration levels, we believe the long-term opportunity is substantially larger. Could Japan ultimately support 1,000 clubs?

Possibly.

Could it support 2,000 clubs?

We certainly wouldn’t rule it out. Management official guidance is even a bit higher. At today’s penetration, the company is still addressing only a fraction of its potential market. The important point is not predicting the exact number. The important point is recognizing that growth is unlikely to be constrained by market saturation anytime soon.

In the next section we’ll explain why we believe the market largely misunderstands FitEasy’s business model, why franchise economics are so important, and why we expect operating profit to grow materially faster than revenue over the coming years.

PART 3 – The business model the market misunderstands

If we had to summarize our entire investment thesis into one sentence, it would probably be this:

The market values FitEasy as a rapidly expanding gym operator, while we increasingly value it as a high-margin franchise platform with significant operating leverage.

That difference may sound subtle but in our opinion, it explains almost the entire valuation gap.

Looking at consolidated revenue misses the point

One of the first things we noticed when analyzing the company was that looking only at consolidated revenue gives a very misleading picture. Revenue is generated through several fundamentally different businesses.

Each has a completely different margin profile, each scales differently and each deserves a different valuation. The market, however, tends to treat them as one business. We don’t.

Instead, we built our own model estimating operating margins for each segment separately using:

• FitEasy’s historical financial statements,

• management commentary,

• comparisons with Planet Fitness,

• comparisons with Basic-Fit,

• franchise economics,

• and historical segment development.

Management unfortunately does not disclose operating profitability by segment. So we attempted to estimate it ourselves. Based on our work, we estimate the approximate operating margin profile as follows:

We spent dozens of hours refining these assumptions and interestingly, the latest earnings only increased our confidence that the overall direction of the model is correct.

Current segment mix

Over the last twelve months, based on the latest quarterly data, FitEasy’s revenue mix was roughly:

• Owned / directly operated gyms: ~15.5%

• Recurring operational / franchise revenue: ~21.7%

• Development / equipment sales: ~62.5%

That explains why consolidated margins today hide the economics of the long-term model. The largest revenue segment today is still development and equipment sales. This segment is important, but it is lower margin. It is not where the long-term earnings power sits. In our model, the mix gradually changes.

By 2028, in our base case, we model approximately:

• Owned gyms: ¥2.5B revenue / ~9% of sales

• Franchise revenue: ¥8.4B revenue / ~31% of sales

• Development / equipment sales: ¥16.5B revenue / ~60% of sales

• Total revenue: ¥27.4B (above management guidance of ¥24B)

At first glance, development revenue still remains a large share of total revenue. But the crucial difference is profit mix.

In our base case, the franchise segment generates roughly ¥4.6B of EBIT, while development sales generate roughly ¥2.5B. In other words, franchise revenue is much smaller than development revenue, but contributes far more profit per yen of sales.

That is the main point – revenue mix matters less than profit mix.

Segment 1 – Owned clubs

FitEasy owns and operates a number of corporate locations. These clubs are extremely important. Not because they generate the highest returns, but because they function as the company’s testing laboratory. New services, new layouts, new technology, new AI features, new pricing.

Everything gets tested in owned clubs first. Once management identifies what works, those concepts can gradually be rolled out across the franchise network.

In our model, we assume owned gyms can gradually improve from roughly 20% operating margin toward 22–27% over time.

The reason is simple:

• higher utilization,

• more members per club,

• better fixed-cost absorption,

• higher ARPU,

• and additional monetization through services.

This is still well below Planet Fitness company-owned gym EBITDA margins, which are around 35–40%, so we do not view this as aggressive.

Segment 2 – Franchises

This is where our thesis becomes significantly more interesting. We believe the franchise segment ultimately becomes the primary driver of shareholder value. Why? Because franchise economics are fundamentally different. We would even argue that running a franchise network is one of the most attractive business models out there.

Instead of funding every new location with its own balance sheet, FitEasy increasingly relies on franchise partners. Those partners:

• invest capital,

• operate the clubs,

• hire employees,

while FitEasy collects recurring fees. This dramatically improves returns on invested capital. It also means incremental revenue requires very little incremental capital.

That’s why asset-light businesses tend to deserve structurally higher valuation multiples. And the market often recognizes this only after the mix has already shifted. We think FitEasy is still early in that transition.

Based on our model, FitEasy currently generates roughly ¥10M of recurring franchise revenue per franchise location.

By 2028, depending on the scenario, we model this increasing to:

• Bear: ~¥12M per franchise

• Base: ~¥14M per franchise

• Bull: ~¥17M per franchise

That may sound like a large increase, but we think it is reasonable given:

• long-term same-store membership growth above 10%,

• additional services,

• higher ARPU,

• AI / retail monetization,

• and potential future price increases.

FitEasy’s franchise take rate also appears meaningfully higher than Planet Fitness.

Our estimate is roughly 20% for FitEasy versus around 7% for Planet Fitness.

Planet Fitness still generates more absolute revenue per gym because its clubs generate much higher sales per location, but FitEasy’s take rate is very attractive.

This is why we think the franchise segment is the most important part of the story.

Segment 3 – Equipment & development sales

Ironically, the segment that has recently grown the fastest is also the one that created the biggest misunderstanding. FitEasy sells equipment and helps franchisees build new clubs.

Naturally, this business carries much lower margins. During periods of rapid expansion, this segment becomes a larger share of revenue, mechanically depressing reported margins.

For example, in the last twelve months, development / equipment sales represented roughly 62–63% of revenue. That is why reported margins do not yet fully reflect the future economics of the company.

The market interpreted this as margin pressure. We interpreted it very differently.

To us, it simply reflects the temporary economics of building a much larger franchise network. Once those clubs open, future revenue increasingly shifts toward recurring franchise income.

The low-margin construction revenue becomes a smaller percentage of profit over time, even if it remains a large percentage of revenue. That is exactly why we believe operating margins should expand.

In our base case, we assume development revenue reaches roughly ¥16.5B in 2028 with a 15% operating margin, generating approximately ¥2.5B EBIT. In our bull case, we assume ¥18B of development revenue with a 20% operating margin, generating ¥3.6B EBIT.

The margin uplift is not based on wishful thinking. It should be achieved thanks to scale, purchasing power, standardization and the new construction license.

The construction license

Another development that we think has received surprisingly little attention is FitEasy obtaining a construction license. At first glance, this may not sound particularly exciting.

We actually think it’s strategically important. Previously, construction and fit-out work had to involve external construction companies. Now FitEasy can increasingly act as a one-stop shop for franchisees.

The company can help:

• design locations,

• coordinate construction,

• hire subcontractors,

• supply equipment,

• standardize layouts,

• accelerate openings.

This should improve the experience for franchisees while also allowing FitEasy to capture more economics from each new opening.

Importantly, this does not mean FitEasy becomes a capital-heavy construction company. The company can still remain asset-light by using subcontractors. But it can control more of the process and potentially capture higher margins.

That is why we believe equipment / development margins could improve from roughly 15% toward 20% over time. And more importantly, it further strengthens the ecosystem – the deeper FitEasy becomes embedded in the economics of every new club, the stronger the franchise system becomes.

Why we compare it with Planet Fitness

Throughout our research we spent considerable time studying Planet Fitness. The businesses are not identical, yet Planet Fitness provides one of the best publicly traded examples of how valuable franchise economics can become once scale is reached – as franchise royalties become a larger share of revenue, profitability can improve dramatically. FitEasy is much earlier in that journey.

Importantly, our FitEasy assumptions are materially more conservative than Planet Fitness in every segment.

(These are not perfectly comparable because Planet Fitness reports EBITDA margins while our FitEasy estimates are closer to EBIT-level operating margins. Still, we think the comparison is directionally very useful.)

Even with these conservative assumptions, FitEasy’s earnings power looks materially higher than what the market appears to be pricing today. And that is precisely why we find the opportunity attractive.

In the next part we’ll explain what we believe is FitEasy’s greatest competitive advantage: its ecosystem, exceptional same-store growth, and why member economics continue to improve despite rapid expansion.

PART 4 — FitEasy’s competitive advantage: Why we believe the market underestimates the ecosystem

If there is one metric we monitor more closely than anything else, it is monthly existing-store membership growth. Not quarterly revenue. Not reported EPS. Not even the number of new club openings.

Why? Because memberships tell us almost in real time whether our investment thesis is playing out. Financial statements are published only four times a year. Membership data is published every month. So far, the numbers continue to strengthen our conviction.

Same-store growth remains exceptional

One of the biggest concerns we had when we first started researching FitEasy was straightforward:

Would opening hundreds of new clubs eventually cannibalize existing locations?

So far, the data suggests exactly the opposite. Over the past two years, total memberships have remained remarkably consistent at around 50% YoY growth, despite the network expanding from 181 clubs in November 2024 to 281 clubs in May 2026.

Even more impressive is what happens inside mature locations. Existing-store memberships have now grown at double-digit rates for 19 consecutive months.

Recent figures include:

We have also attached the company’s yearly membership chart below because it shows the long-term member retention and because we believe it is one of the strongest pieces of evidence supporting our thesis.

For comparison, many mature Western gym operators would be pleased with 2–3% same-store sales growth. FitEasy continues delivering membership growth several times higher while simultaneously opening dozens of new clubs every year.

To us, this is one of the clearest indications that the business is still far from saturation.

We believe revenue per club can grow even faster

Interestingly, member growth may not even tell the whole story. Our expectation is that same-store revenue growth could exceed membership growth.

Why? Because management is continuously increasing the monetization opportunities available inside each location. Every additional service increases the value of the membership. Every additional service creates another opportunity to generate revenue without building another gym, leading to significant operating leverage.

The company is gradually transforming a simple gym membership into a broader lifestyle subscription. As we mentioned previously, members can already access more than 30 complementary services beyond traditional fitness equipment like golf simulators, bouldering or basketball courts and no single location offers all of them.

On top of that, the company is investing in several new monetization initiatives, including:

• AI-powered personal training,

• movement analysis,

• personalized workout plans,

• nutrition recommendations,

• automated retail,

• protein and supplement sales,

• premium wellness services,

• and, over time, higher average membership pricing.

As a result, we believe same-store revenue growth could exceed same-store membership growth, as revenue per member continues to increase.

Management continues to overdeliver

Another reason we remain confident is management’s execution. Since becoming a public company, management has consistently delivered above its original expectations.

Over the past several years they have:

• repeatedly exceeded membership targets,

• raised guidance during the fiscal year,

• increased profit guidance by more than revenue guidance,

• doubled the annual dividend,

• expanded the ecosystem,

• introduced new AI initiatives,

• and recently obtained a construction license that should further improve the franchise offering.

Combined with one of the strongest same-store membership growth profiles we have found globally, we believe this creates a business that deserves a structurally higher valuation multiple than the market currently assigns.

In the final part, we’ll present our valuation model, expected margin expansion, scenario analysis, and why we believe FitEasy offers one of the most attractive long-term risk/reward opportunities in global small-cap equities.

PART 5 – Valuation, scenarios and why we believe FitEasy is still significantly undervalued

Everything ultimately comes down to one question: How much could FitEasy be worth by FY2028 if the business develops the way we expect?

Management’s current mid-term guidance is already impressive:

We believe this guidance is still conservative, especially on profitability. The key difference between management guidance and our model is not only revenue growth – it is segment mix and margin expansion. As you can see in the margin guidance below, management actually doesn’t project any margin expansion at all:

After studying the business and management guidance in depth, we have modeled these three future scenarios:

1. Conservative scenario

In our conservative case, FitEasy opens 150 new clubs in FY2028.

Revenue reaches ¥23.6B, broadly in line with management guidance.

Segment revenue mix:

Compared with management’s FY2028 guidance:

• Revenue: ~2% below guidance

• EBIT: ~5% above guidance

At 12x EBIT, this implies an enterprise value of roughly ¥71B. Compared with today’s EV of approximately ¥45B, that implies:

• ~1.6x return

• +58% upside

• roughly 20% annualized return over ~2.5 years.

This is the scenario where almost everything goes only reasonably well.

2. Base case

This is currently our most realistic scenario.

We assume FitEasy opens 165 new clubs in FY2028, broadly in line with management’s own store opening plan.

Revenue reaches ¥27.4B, meaningfully above guidance.

Segment revenue mix:

Compared with management’s FY2028 guidance:

• Revenue: ~14% above guidance

• EBIT: ~36% above guidance

This is the core of our thesis.

Even though franchise revenue would represent only about 31% of total revenue, it would contribute roughly 60% of total EBIT.That is why we believe earnings can grow faster than revenue.

At 18x EBIT, this implies an enterprise value of roughly ¥138B. Compared with today’s EV of approximately ¥45B, that implies:

• ~3.1x return

• +207% upside

• roughly 57% annualized return over ~2.5 years.

3. Optimistic scenario

This is our upside case, not our central expectation. Here we assume FitEasy continues outperforming, same-store growth remains very strong, monetization improves materially, and the market begins valuing the company more like a premium global compounder.

We assume 180 new clubs in FY2028.

Revenue reaches ¥31.2B.

Segment revenue mix:

Compared with management’s FY2028 guidance:

• Revenue: ~30% above guidance

• EBIT: ~86% above guidance

At 26x EBIT, this implies an enterprise value of roughly ¥274B. Compared with today’s EV of approximately ¥45B, that implies:

• ~6.1x return

• +509% upside

• More than 100% annualized return over ~2.5 years.

We view this as an optimistic scenario, but not impossible if current trends continue.

Summary of the scenarios & outcomes

The market seems to focus mainly on consolidated revenue and management guidance. We think the more important question is: What percentage of future EBIT comes from high-margin franchise royalties?

In our base case, franchise revenue is only 31% of sales, but around 60% of EBIT. That is the operating leverage the market is missing and why we believe FitEasy can outperform management guidance, especially on profitability.

Summary of the outcomes and potential returns:

Conclusion – Why FitEasy remains our largest position?

At a first sight, FitEasy looks like an average gym chain trading at a low valuation. But as we dive deeper, we find something completely different – a well-managed company operating in a growing and largely unpenetrated market.

Given expanding offerings and improved monetization, we believe FitEasy is on track to sustain its 10%+ same-store growth, and combined with new locations, this should allow them to safely beat their 30%+ revenue growth guidance in coming years. And as the company shifts more towards high-margin franchise revenue, this should also lead to structurally better margins.

Combine this with the company becoming bigger, receiving analyst coverage and institutional/index buying, and we have a recipe for a very attractive setup – potentially over 3x return in the base case. And that’s why we believe FitEasy offers one of the most attractive long-term risk/reward opportunities in global small-cap equities today.

Disclaimer: This post is for informational purposes only and is not investment advice. It reflects the author's personal views and estimates, which may be incomplete or incorrect. Do your own research and consult a qualified advisor before making investment decisions. The author/affiliated fund currently holds a position in $212A.T and may buy or sell shares at any time.