Here's Why Riverwater Partners Small Cap Strategy Sold Vestis Corporation (VSTS)

Riverwater Partners, an investment management company, released its “Small Cap Strategy” Q3 2025 investor letter. A copy of the letter can be downloaded here. The Small Cap Core Strategy reported solid results for the quarter but did not keep pace with the sharp rally, thus lagging the benchmark. The market’s preference for lower-quality companies persisted in the quarter and contributed significantly to the benchmark’s outperformance. On the other hand, the strategy remains focused on higher-quality companies with enduring fundamentals, consistent revenue, and a transparent path to profitability. The firm strongly believes that the strategy is well-positioned in the challenging quarter. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Riverwater Partners Small Cap Strategy highlighted stocks such as Vestis Corporation (NYSE:VSTS). Vestis Corporation (NYSE:VSTS) is a uniform rental and workplace supplies provider. The one-month return of Vestis Corporation (NYSE:VSTS) was 38.46%, and its shares lost 53.07% of their value over the last 52 weeks. On December 15, 2025, Vestis Corporation (NYSE:VSTS) stock closed at $7.56 per share, with a market capitalization of $996.913 million.

Riverwater Partners Small Cap Strategy stated the following regarding Vestis Corporation (NYSE:VSTS) in its third quarter 2025 investor letter:

"We exited Vestis Corporation (NYSE:VSTS) as the company is currently in the process of turning around the business and we believe it could take much longer than originally anticipated. Coupled with this is a debt overhang that could potentially make it difficult to reinvest in the business as funds are allocated to paying down debt."

Vestis Corporation (NYSE:VSTS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 27 hedge fund portfolios held Vestis Corporation (NYSE:VSTS) at the end of the third quarter, which was 34 in the previous quarter. While we acknowledge the potential of Vestis Corporation (NYSE:VSTS) as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

In another article, we covered Vestis Corporation (NYSE:VSTS) and shared Riverwater Small Cap Strategy's views on the company in the previous quarter. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.