A business does not become a better or worse investment simply because its share price says so. Markets move quickly. Narratives move even faster. A stock that rises can appear obvious in hindsight, while a stock that falls can look like a mistake before the evidence is complete. The challenge for an active manager is not to explain every movement after the fact. It is to decide, in real time, whether the market is identifying a genuine change in business value or merely changing the price it is willing to pay for uncertainty.
That distinction is central to Pembroke’s approach. We spend significant time with companies before we own them, while we own them, and sometimes after we have sold them. That continuity matters. It allows us to revisit a business when facts change, to remain open-minded when a previous conclusion no longer applies, and to avoid treating volatility as its own conclusion.
During the quarter, two holdings illustrated that discipline in different ways. Black Diamond Group, a Canadian modular space and workforce accommodation business, was a strong performer. Ollie’s Bargain Outlet, a United States-based extreme-value retailer, was not. In both cases, the question was the same: what is the market telling us, and what should we actually do with that information?
What Clients Saw
Black Diamond’s share price benefited from a combination of strong execution and growing investor interest in Canadian infrastructure, mining, energy and other “nation-building” projects. From the outside, the story could be simplified into a stock that finally found the right macro theme. A company with workforce camps and modular buildings naturally looked well positioned as investors searched for ways to express a view on increased project activity in Canada.
Ollie’s provided the opposite experience. The stock came under pressure as same-store sales, a measure of sales at stores open for at least a year, slowed. Consumer sentiment weakened, and investors questioned whether the company’s best growth was behind it. A recent brokerage research downgrade sharpened that debate, focusing on weaker near-term sales, higher promotional activity, and concerns that the store experience may be becoming less of a “treasure hunt” and more dependent on price.
Both explanations were reasonable. Neither was sufficient.
Black Diamond: When Institutional Memory Becomes an Advantage
Pembroke’s relationship with Black Diamond did not begin with the recent share price move. We owned the business years ago, during a very different period in its history, and we continued to follow it after exiting. That matters because Black Diamond is not the same company it was during the last commodity cycle.
Historically, the company had meaningful exposure to oil sands-related workforce accommodation. When that cycle turned down, the business faced a very difficult period. Demand fell faster than expected, debt became a constraint, and the company spent years working through a painful transition. For a long period, it was difficult to assess as an investment.
However, difficult periods also reveal management quality. Black Diamond did not simply wait for a cycle to return. It paid down debt, made acquisitions, invested organically and built Modular Space Solutions (its business renting and selling temporary modular buildings) into a more durable and attractive model. What had once been primarily an accommodation story evolved into a broader modular space platform, serving construction, education, government, industrial and infrastructure customers. Workforce accommodation, the historical core business tied more to the resource markets, remained valuable, but increasingly as a potential source of upside rather than the entire thesis.
That evolution is what brought us back to the name. We were not buying a simple commodity recovery. We were buying a better-capitalized, better-diversified business run by a management team that had already demonstrated resilience and alignment through a difficult decade. The market was slow to change its view. Our history with the company helped us see that the underlying business had changed.
The more recent excitement around Canadian project activity has helped. Workforce camps, modular buildings and crew logistics are all relevant to mining, energy, infrastructure and defence-related investment. The Royal Camp acquisition, completed in November 2025, also appears well timed. LodgeLink, Black Diamond’s online marketplace for booking and managing workforce lodging in remote project markets, once easier to treat as future upside, has become more commercial. However, the important point is that these were not the original reasons to own the business. They were potential upside embedded in a thesis that already made sense.
That is the portfolio-management lesson: a winning stock still requires judgment. The decision is not simply whether the share price has risen, but whether the reasons for owning it have become more or less compelling. In Black Diamond’s case, the stock has benefited from a higher valuation multiple and a stronger narrative, but the underlying execution has also improved. While we must remain disciplined on valuation, selling solely because the market has begun to recognize what we saw earlier would be no more thoughtful than buying simply because a theme has become popular.
Ollie’s Bargain Outlet: When Weakness Is Not Impairment
Ollie’s tested a different discipline. The market’s concern was easy to understand. Same-store sales have decelerated meaningfully from the levels that once excited investors. The consumer is under pressure. Certain seasonal categories have been hurt by the weather. Higher fuel prices can matter for a value-oriented customer. Promotions have increased, raising questions about margin quality. More structurally, some investors worry that the assortment is becoming more predictable, reducing the “treasure hunt” element that has historically driven store traffic.
Those issues are not noise simply because the stock is down. They are the right issues to examine. If Ollie’s were losing its ability to source attractive closeout inventory, if traffic required permanent margin sacrifice, or if new stores began to underperform, our view would need to change. Active management does not mean defending a thesis regardless of evidence.
However, it also does not mean trading around every same-store sales report. Ollie’s is a long-run story driven by new store openings and a value-seeking customer. The company buys excess inventory and closeout merchandise at discounts, then resells it through large-format stores to consumers who are trying to stretch household budgets. That model can look messy quarter to quarter because categories, weather, deal flow and promotions all matter. It can also look worse at precisely the moment when the long-term opportunity becomes more attractive.
Our judgment is that the current debate is more about the path than the destination. Weak same-store sales matter, but they are not the entire business. A period of low same-store sales does not erase the store-opening runway, the appeal of value retail or the company’s ability to benefit from supply-chain dislocations that create closeout opportunities. In fact, owning a business like Ollie’s often requires accepting that the market will periodically over-focus on the next few months of traffic and margin.
That does not make the stock risk-free. The most important question is whether the recent weakness is temporary or evidence that the model is becoming less differentiated. We are watching that carefully. The active decision, however, is not to let short-term consumer anxiety alone dictate the conclusion. When a business still has structural growth potential and the market is pricing it as though that potential has diminished materially, weakness can be an opportunity rather than a warning to exit.
What This Says About Our Approach
Black Diamond and Ollie’s appear to tell opposite stories, but the underlying discipline is similar.
With Black Diamond, the work was to remain close enough to a company we had once owned to recognize that it had become investable again. That required setting aside old conclusions when the facts changed. With Ollie’s, the work is to avoid letting disappointing near-term sentiment overwhelm a longer-term thesis before the evidence supports doing so.
In both cases, the portfolio-management question comes after the news, not before it. What is already in the price? What is temporary? What is structural? Has management earned more trust or less? Are we being paid for the uncertainty, or merely hoping it disappears?
Active management is often described through trades: buy, sell, trim and add. In practice, the harder work is the judgment that precedes these actions. Sometimes the right decision is to revisit a former holding. Sometimes it is to let a winner continue to compound. Sometimes it is to add to a loser when the market’s concern is real, but overstated.
The market will always supply a narrative. Our job is to decide whether it is a signal, noise or an opportunity.