Buy The Assets, Get a $55B Business Free
A business trading at 0.7x TBV and 4.5 FCF
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It’s not often I fall in love with a business through their IR pages, but that’s exactly what happened with this one.
They even map out the dates and placeholders for next year’s financials.
I was in UX heaven.
Sadly, this has no impact on whether or not we make money, so I swiftly moved on to the valuation…
Here are the basic ratios I started with:
TBV Ratio = 0.7
EV/5Y FCF Ratio = 2.5
P/ 5Y FCF Ratio = 2.5
EV/FCF Ratio = 4.5
P/FCF Ratio = 4.8
Whenever I find a stock with these kinds of metrics, all sorts of questions start running through my mind.
The biggest one, of course, is, why is it so cheap?
Often, there is a good reason for the price tanking. But more often, that reason doesn’t quite justify the extent of the tanking.
And that’s our opportunity.
This stock is a lot more complicated than meets the eye, and certainly more complex than the headline data suggests.
With every stock I look at, I always ask the same question:
“How would I feel about owning this business outright, after paying today’s price?”
Sometimes, I feel like reaching for the Pepto-Bismol and imagine months of sleepless nights.
Other times, I get excited by how boring and consistent the cash-flows would be, and all the yachts I could buy.
Today’s stock is one of those.
At today’s market-cap, it’s being priced like a value-trap in terminal decline.
The discount to TBV indicates the market believes that either the assets aren’t real or that management will simply burn through them to no avail.
The earnings multiple implies that the operating business is in permanent decline, and will soon start burning endless cash.
The operating business is being given away for virtually nothing, as a result.
I strongly disagree with this valuation.
After reading and reading, and staring out of the window for a few days, I decided exactly how I’d play this set up.
I wrote it up, in case anyone likes the idea too.
Let’s take a look…