A Quality Business Trading at 0.8x EV/FCF
It also pays consistent dividends while trading at liquidation value with a P/5Y FCF ratio of just 3.
Mr Deep-Value also offers:
A 90%+ discount off Bloomberg’s No.1 competitor
Separately managed accounts for US clients
Today’s stock is one I added to my portfolio recently.
It’s probably one of the most controversial stocks I’ve owned for a while.
It’s not trading below liquidation value, although its pretty close, and revenues have taken a hammer blow.
This is the deep-value equivalent of betting on future earnings growth (kind of), although we don’t exactly need miracles for it to pay off.
Here are the ratios:
NCAV Ratio = 1.3
TBV Ratio = 1.2
EV/5Y FCF Ratio = 0.8
P/5Y FCF Ratio = 3.4
The assets backing these up are mostly cash and contracted receivables.
The operating business is priced at almost zero.
Despite the fact that it has never failed to generate positive FCF over the last 20 years.
There are, of course, ‘reasons’ for this pricing.
My job is to figure out whether or not the market has correctly identified the permanent elimination of future FCF, or, incorrectly mispriced temporary uncertainty.
This is the difference between a melting ice cube and a stock that doubles within 3 years.
After thoroughly reviewing the situation, I decided to allocate a small portion of my capital to this business.
I’ll admit that this was a tough call, and I deliberated for quite some time.
However, it’s ‘different’ from all the other stocks I currently own. And that’s kind of what I like about it.
I have conviction in the future earnings of today’s stock, but you may not. And that’s the beauty of deep-value investing.
You can do it your own way, and still do well.
Everything I own is cheap, but some stocks have much better earnings potential than others.
Under normal circumstances, you only get these types of businesses, at dirt-cheap prices, where there is some kind of terrifying uncertainty that the market cannot tolerate.
In fact, one of my most popular write-ups was a business with great earnings, experiencing uncertainty that caused the market to give it away.
Today’s stock, in my opinion, is one such business.
Let’s see if you agree or not…