Value in Big Ideas, Not Necessarily Big Capitalization

By Business Leaders FOXBusiness

Finding value in the little guys

After 30 years on Wall Street, Sidoti and Company's chief Peter Sidoti found a more rewarding career in focusing on small companies with big potential.

After more than 30 years on the Street, Peter Sidoti learned big ideas carrying big potential don’t always have to come in the biggest, shiniest packaging.

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The Sidoti and Co. founder said while the years he spent working with big name, big capitalization companies were a great experience, there was always something missing.

“I like having fun with what I do and I also like to be successful with what I do,” he said. “There are a lot of very bright people on Wall Street who cover the large-cap names and it’s just easier in the smaller-cap arena and it seems to be a whole lot more fun.”

Sidoti founded his company out of necessity in 1999 when he was fired from Schroder’s Investment Management, where he was in charge of small-cap research. Taking a handful of people from his team, along with some big dreams, Sidoti started his own shop aiming to make a name for himself.

Now, with 80 analysts and 170 employees, Sidoti and Co. does research for nearly 900 micro- to small-cap companies, firms that generally have a market value of $2 billion or less. And though small in market cap, many of the names are recognizable – companies like 1-800-Flowers (FLWS), Build-a-Bear (BBW), WD-40 Company (WDFC), and Cabela’s (CAB).

For Sidoti, the people he works alongside each day aren’t just employees; instead, he treats them as members of the family. And a large family at that. Sidoti said with those numbers, he supports about 160 families including 100 children.

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Sidoti said that mindset – thinking of co-workers and employees like one of your own – fosters a much more friendly and successful work environment.

“When I worked at a large firm, you always wanted the person next to you to do poorly because you knew at the end of the year, the bonus pool would only be so large,” he said. “So if you succeed, he did poorly, you made more money. But in a firm like ours, you really need the guy next to you to do a good job, because if he does, the bonus pool for everybody is bigger.”

In fact, Sidoti said that’s part of one of his biggest lessons in all his years in the business: Learning that business and work isn’t always about the bottom line  -- often, it’s about the people who make up everything in between.

“If you happen to have people who tend to be successful, I don’t know if they’re happy because they’re successful, or if they’re successful because they’re happy. But it really begins with the people. We have a great group of people who have been with us for a long time, and it just makes life so much easier,” he said.

And though it’s small, Sidoti said the firm is still mighty – aiming for 1,400 names under coverage in the next few years.

“We expect to be the 800-pound guerilla in the room in small research,” he said. “We want it to be: If   you’re an institution, you really have to do research with us.”

Sidoti’s company never aimed to cover giants like Apple (AAPL), GE (GE), or Microsoft (MSFT) because there was simply no need.

“If you look at Apple, I believe 63 people provide research for it. But really, where’s the value add if    you’re going to provide research for a company like that,” he said. “Historically, what you have to remember is a lot of companies that are large caps today started as very small companies…with market caps below $20 million in terms of size of their IPO.”

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