An EU Net-Net Priced at 2x FCF
You just need to figure out if it's a value-trap or a growth-stock in disguise...
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Today’s stock looks cheap:
NCAV Ratio = 0.7
TBV Ratio = 0.7
EV/5Y FCF Ratio = 0.7
P/5Y FCF Ratio = 2.0
It currently trades 50% below its tangible book value and around 300% below my estimate of its fair value.
It’s been successfully operating since 1985, and has more cash than debt.
FCF has been lumpy and there was a big (unrepeatable) spike in cash thanks to the COVID boom.
The game I play is pretty simple.
I find a business priced like it died, and take the bet that it won’t actually die any time soon.
The core bet is that established, healthy businesses will generate more free cash flow during their remaining life than the current market cap value.
This, in my view, is the simplest way to invest, and the surest way to long-term wealth.
I leave the complicated growth stories and the 100-baggers to the smart guys on social media.
The world is full of cheap stocks, and every one of them is cheap for a reason.
Despite being simple, this version of the game isn’t necessarily easy.
Sometimes, the ‘reasons’ are fuzzy and it’s difficult to judge whether or not the business will indeed continue, as it always has.
For example, this business lost its entire business model overnight.
This business supplies an entire industry that is in structural decline, pretty much globally.
And, this business operates between the lines of war-zones and sanctions.
They’re all ‘cheap’ but I’d think twice about owning them in real-life, and thus, the stock.
Some businesses sit right in the middle of the grey-area that makes it difficult to really make a confident decision either way.
Others provide much more conviction, and I jump at the chance to buy more stock, as the price fluctuates downward.
Today’s stock sits on my watchlist, and I wrote it up because I feel that some readers might enjoy digging deeper.
Maybe you’ll decide that it’d fit nicely inside your portfolio.
Or, maybe you won’t.
Let’s dive in…