6.2x EV/Earnings, Switching from Dividends to Buybacks
Today’s Stock:
6.2x EV/Earnings
20+ consecutive years of operating profits
24 straight years of dividends paid; now switching to buybacks
Net cash + buyback authorization = potential for large share count reduction
Unknown, illiquid nanocap
PLUS an update on a prior idea - 4.18x EV/EBITDA. Major shift in capital allocation. Divestitures, dividends, buybacks. Market asleep.
When Warren Buffett invested in the Washington Post, he estimated he was paying 25% of intrinsic value.
He said any intelligent participant in a private market would’ve come up with the same valuation.
Buffett has talked about discounts in the stock market. From time to time, you’ll see things in public markets that just can’t exist in private markets. That’s what happens when incremental buyers/sellers meet daily. Incremental sellers can have any number of reasons for exiting.
Oftentimes we see valuations in public markets that don’t make sense. But as we dig deeper, we find the management team to be the problem. Value that is evident to us, is not being monetized by management.
How many times have you looked at a stock and thought “Why don’t they just sell that building? They don’t need it, and the proceeds would be worth half the market cap. They could take the cash and retire half the outstanding shares.”
Then you look back in five years and the story is still the same. Same guy running the show, same valuation, same untapped upside.
What we want, is a management team that will change its mind.
And that’s the kind of story I’m going to tell today.
We have two stocks.
Company has been consistently profitable for 20+ years. Management has paid a dividend every year, without fail. Now, with the stock price dropping, management has decided buybacks would be a better method to create value.
Trades at 4.18x EV/EBITDA. Divested bad businesses. Paid off all debt. Paid special dividends. Now instituting a regular dividend. Hints toward increased buybacks. Profiled earlier this year, but the story grows stronger, and stock is as cheap now as it was then.