Very few mainstream investors would pick up shares. But Kian Ghazi would. He’s the co-founder Hawkshaw Capital Management who uses investigative research to track down some of the best deals on the market.

Ghazi’s been keeping his eye on this $150 million broken businesses in the IT training field. And while other investors have run the other way, Ghazi’s scuttlebutt has led him to a terrific, overlooked deal.

The name of the company is Learning Tree (LTRE: NASDAQ). Many investors consider Learning Tree a failed computer-training center. However, Ghazi describes the business as a 30-year veteran in the IT training field with a strong reputation and tons of potential.

As I mentioned before, Ghazi reinforces his investment ideas with interviews and other research. He acknowledges that there are other people out there that probably know a particular business better than himself and his analysts. This is why he relies on scuttlebutt as a margin of safety.

Ghazi admits that this type of research is difficult and time-intensive when it’s done properly. But it helps him build conviction. Hawkshaw’s portfolio — with only 15 long positions — proves this. It’s Ghazi’s scuttlebutt research that equips his team with the knowledge and courage to act decisively.

Ghazi describes Learning Tree as a “butts-in-seats” business. And this would explain why very few people are willing to put their hard-earned money into this company right now. Learning Tree classes are stuck with a problem: Too many seats and not enough butts. This is causing the company to barely break even, Ghazi said.

Here’s where the big profit potential comes in. Learning Tree is poised to expand its training opportunities and reduce its excess infrastructure. This is a “powerful combination that could unleash substantial earnings power,” Ghazi said.

So that’s Learning Tree’s plan for success. But will it work and help increase its share price? Ghazi’s research tells him it will. This gives him the confidence to buy into a “broken” company that would frighten most investors.

Here’s what he found:

• After talking with some of Learning Tree’s competitors, Ghazi learned that the company’s idea to use extra classroom space for management training is a good idea. Learning Tree should have no problems using its solid reputation to move into this field.
• Learning Tree is offering more classes. This, coupled with its investments in its sales force, will help the business grow.
• After talking with customers, Ghazi learned that the classes offered at Learning Tree are useful and that a lot of value is placed on instructors’ real world experience with the subjects they teach. He also learned that customer service is great and the price of classes is reasonable.

So while Learning Tree may still be “broken,” it appears that the company is well on its way to being repaired and profitable once again.

Best,
Gunner
November 20, 2006

Alternative Investment Strategies was originally featured in the Penny Sleuth.