63% of Book Value, 45% Operating Margins, Exploring Strategic Alternatives

Today’s stock:

• 63% of book value

• 45% operating margins

• 5% dividend yield

• Stable, fragmented customer base

• Management exploring strategic alternatives to close gap in book value

The S&P 500 currently trades at 28x earnings.

That’s significantly higher than its long-term P/E ratio.

Stocks are down to start the year. But the S&P could fall a lot further and still be expensive based on historic metrics.

I know, I know, the Mag 7 have better unit economics than historically large businesses. AI will lead to permanently higher per capita output. GDP to the moon baby.

Maybe that’s all true. And maybe unprecedented growth continues to drive this market.

But, every time we’ve been to this level before, the next decade was a tough one for equities.

So, what’s an investor to do?

I think you’re best to go find cheap stocks with durable earnings. If they have a catalyst attached, that’s even better.

Today’s stock has all three (cheap, healthy earnings, catalyst in place).

We’re going to discuss a high margin business with a rock-solid balance sheet selling for 63% of NAV.

The business pays a healthy dividend and has historically returned all FCF to shareholders.

Plus, there’s a catalyst.

Management has initiated a strategic review with the intention of closing the gap between the share price and book value.

A sale at book value within a year would result in a 58% IRR.