The headline numbers are striking:

• 1.2x EV/FCF.

• 0.6x book value.

• 8x earnings.

Free cash flow has been positive every single year for the last ten years.

Cash sits at 80% of the market cap against essentially no debt, and management is actively returning that cash to shareholders.

Of course these numbers got me interested.

Anytime a company trades below 2x EV/FCF, it’s worth taking a close look.

So I started digging.

I was looking for a catastrophic risk that would explain these numbers.

I did not find one.

There is no ugly behavior toward shareholders.

No hidden liabilities.

No dilution, if anything the opposite. The share count has been shrinking for years.

No M&A adventures either.

Management doesn’t come across as promotional. There’s been no super optimistic outlook, and no growth targets dangled to pump the stock. Pay is reasonable too.

Insider ownership is high enough to align interests, but the float is still large enough that anyone can build a position.

There’s some customer concentration, but nothing that wouldn’t be considered normal for a microcap.

And the most plausible endgame here is probably a privatization offer from the controlling shareholder group.

So here’s what we’ve got: a cheap valuation, no obvious red flags, and a possible catalyst somewhere down the road.

I like that setup.

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• 65% of the market cap sits in cash

• Management is finally divesting the bad businesses

• A hugely profitable, growing core business hiding underneath

A long-term view is its own edge in a short-term market.

As a small private investor, patience is one of the few structural advantages you actually have.

Nobody can force you to sell, and nobody fires you for holding something that does nothing for a year.

Most funds don’t have that luxury.

They are driven by pressure from outside investors, worried about their own careers, and scared to look wrong for six months straight.

That’s what lets patient investors capture the higher returns a long-term view can offer.

And sometimes a long-term view just means being able to look past the current quarterly report.

Vaso Corporation

Ticker: VASO Market cap: $33.26M.

Vaso Corporation is a small company based in Plainview, New York.

It runs three very different businesses inside one corporate shell. All of them pull in opposite directions.

That structure is exactly where the opportunity hides.

So let’s make sure we understand each segment.

In $ thousands. * Includes a $4,639k goodwill impairment; ($1,920k) without it. ** Includes $1,930k of costs for a failed Achari SPAC deal.

First is the professional sales service segment (VasoHealthcare).

The easiest way to think about this segment is as a commission-based sales agency. Vaso doesn’t own or make anything here, it just sells.

It employs 80-90 salespeople and has been the exclusive outside sales rep for GE HealthCare’s (NASDAQ: GEHC) diagnostic imaging equipment since 2010.

The team sells GE’s MRI, CT, and ultrasound machines to hospitals and clinics across the US. GE delivers the equipment, and Vaso collects a commission.

It’s a very capital light business model.

Second is the IT segment (VasoTechnology).

Until recently this segment had two parts. NetWolves, a managed network and security business Vaso bought in 2015, and VasoHealthcare IT (VHC-IT), a healthcare software reseller (basically a sister business to the professional segment, just for software instead of hardware).

Vaso sold VHC-IT in November 2025, so the IT segment today is essentially just NetWolves, which has been shrinking for years.

The last piece is the equipment segment (VasoMedical).

This is Vaso’s original business, dating back to 1995, and in a way the counterpart to the professional segment. Here Vaso actually designs and builds its own medical devices (mainly EECP systems and Biox devices for cardiovascular therapy and diagnostics), with operations in the US and China.

It’s small, slowly shrinking, and loses money every year.

The professional segment is the crown jewel. That’s worth keeping in mind.

In 2025 it brought in about $44.2 million in commission revenue and it reliably produces $6.6–7 million of operating income, all while being capital-light and growing.

The other two segments together burn ~$2.5–3 million a year before one-off charges, and in doing so they eat up the entire profitability of the good business.

(Hint: that’s the heart of this thesis)

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The Numbers From the Outside

If you just look at the top-line numbers, the situation doesn’t exactly scream opportunity.

Revenue has been growing, but only modestly.

Gross profit climbs along with it. Operating income, though, tells a different story.

The problem comes down to SG&A, which behaves a bit strangely here.

It jumped from $40.8 million in 2022 to $52.2 million in 2025, a 28% increase in three years.

Almost all of the 2025 increase came from the professional sales segment, where SG&A went up by about $3.2 million while the other segments stayed flat.

What exactly is driving that isn’t explained. It definitely has nothing to do with sales commissions paid to employees, those sit in cost of revenues.

The 10-K only says the increase was “attributable mainly to higher sales personnel-related and IT costs.”

What exactly that means is unclear, and I couldn’t get to the bottom of it. That’s something to watch over the next few quarters.

Adjusted for the one-offs in 2024 and 2025 (tikr does that automatically), operating income fell from $2.22 million to $1.75 million, which traces back to the SG&A dynamic above and a growing loss in the equipment segment.

The bottom-line net income, finally, tells you almost nothing.

It gets pushed around by interest income on the cash pile, by tax effects, and by one-offs like the gain on the VHC-IT sale.

Reported EPS of $0.01 and the resulting P/E of 19 are close to useless for valuing this business.

The Balance Sheet

For quite some time, the thesis on this company was simply that it was very cheap on an EV/EBIT basis.

Starting with an exceptionally strong year in 2022, where the professional segment earned $9.5 million of operating income, cushioned by income tax benefits and working capital swings, Vaso built up an enormous cash position. And they kept adding to it.

By December 31, 2025, cash had peaked at $35.05 million:

With almost no real liabilities on the books, that cash pile pushed the EV negative against a then ~$30 million market cap.

Some would say you were getting the business for free.

A big driver behind that cash generation is a sort of negative working capital business model.

To understand that, it helps to look at two other items on the balance sheet.

You’ll see $54 million in total liabilities, which sounds like a lot, but about $40 million of that is deferred revenue:

The real liabilities are minimal, just some leases and a small note.

And that deferred revenue comes almost entirely from the professional segment.

The contract balances note in the 10-K describes it like this:

“In our VasoHealthcare business, we bill a portion of commissions on the orders we booked in advance of delivery of the underlying equipment.”

So when a hospital orders GE equipment, Vaso earns a claim to a commission.

Vaso bills part of it, and partly collects it, before GE even delivers the machine. But it can only recognize the revenue once the equipment has been delivered and accepted.

In the meantime, the amount sits on the balance sheet as deferred revenue.

Because Vaso collects part of these commissions up front, a substantial portion of the cash position is float (money held against the deferred revenue.)

That’s exactly why Vaso sits on $35 million of cash despite meager net income.

It’s similar to insurance float, or Costco collecting membership fees before you ever buy anything.

You could, by the way, also look at the deferred revenue as a backlog of booked orders. And that backlog has grown massively. It’s more than doubled since 2020.

Then Came the Q1 Report

On May 15, 2026, Vaso released its latest quarterly report.

If you just glance at it, it looks like the cash position simply dropped by about $13 million. In three months.

Because, well… it frankly did.

Cash went from $35.05 million to $21.97 million:

With the lower cash position, the enterprise value was suddenly no longer negative, and the business no longer “free.”

As of today, July 4, the EV stands at $13.7 million.

And it seems like investors reacted to that news. The share price took quite a hit after the release of the 10-Q and dropped about 25%:

But the surprise here probably wasn’t just that the cash position dropped. For investors who had read the 10-K closely, it was more likely how far it dropped. The 10-K had already disclosed that as of March 27, cash stood at only $29.5 million:

„At December 31, 2025, we had cash and cash equivalents of $35,050,000 and working capital of $21,714,000. At March 27, 2026 the Company’s cash and cash equivalents were approximately $29.5 million.“

That’s quite a bit more than what the quarterly report ended up showing.

It’s Different Than It Seems

If you take a slightly closer look, you can see it wasn’t as if $13 million simply left the party.

Yes, cash fell from $35.05 million to $21.97 million, but the net loss for the quarter was only $887k.

Almost the entire cash drop came from working capital movements, in other words, timing effects:

The biggest pieces were receivables, which rose by $5.65 million. It looks like a lot of GE equipment was delivered during the quarter, so Vaso recognized the commissions and booked receivables, but hasn’t collected the cash yet.

Total receivables now stand at $21.5 million, and as they get collected over the following quarters, they should turn back into cash.

Accrued commissions and expenses, meanwhile, dropped by about $6 million.

These are the seasonal commissions and bonuses that accrue for the sales force over the year and get paid out in Q1. You can see the same pattern in Q1 2025, and in the years before that.

So the Q1 level of $22 million is very likely a seasonal low, and cash should rebuild toward ~$30 million over the course of 2026 as receivables come in and no big commission payouts are left.

With that, the enterprise value should fall back to ~$3–6 million.

Now Comes the Interesting Part

Remember the three segments from the start?

The professional (GE) segment, the IT segment, and the equipment segment.

I want to highlight something.

How the professional segment has been performing.

Its revenue has climbed sharply over the last several years, almost doubling since 2020, while the IT segment stagnates and equipment slowly drifts down.

Part of that is simply Vaso improving, with higher sales numbers and higher commission rates, but a GE market tailwind plays into it too.

GE HealthCare’s imaging business, the division Vaso sells for, has been growing at mid-single-digit revenue growth over the past years. That’s been masked a bit in their reports by foreign sales, which aren’t relevant for Vaso.

So to some extent, Vaso’s growth is coattail growth. But only to some extent, since the professional segment has been growing faster than the US imaging and ultrasound market.

Either way, those are good coattails to ride.

On the profit level, the contrast between the professional segment and the other segments is even sharper:

* includes the $4,639 goodwill impairment; about (1,920) without it ** includes $1,930 failed-SPAC cost

The professional segment reliably earns $6.6–7 million of operating income, while IT and equipment burn money next to it.

The 10-K makes a point of it too:

“Approximately 50% of our revenue and all of our operating income is generated from sales of GEHC products under this agreement.”

The consolidated numbers you saw earlier, with the unimpressive revenue growth and shrinking operating income, completely bury how good the core business actually is.

A company consisting only of VasoHealthcare, with ~$44 million of commission revenue, ~$6.6 million of operating income, capital-light and growing, plus $30-something million of cash, would be valued completely differently than the current conglomerate look, with a shrinking IT business and a loss-making equipment business wrapped around it.

So naturally, you’d want management to just get rid of the bad segments and let the good one finally show through.

Turns out, they’re already doing it.

Divesting the Bad Businesses

In November 2025, Vaso sold VasoHealthcare IT (VHC-IT), the software-reseller half of the IT segment, to Nano-X Imaging (NASDAQ: NNOX).

The deal itself was small, a roughly $827k book gain and just $200k of cash proceeds.

But forget the numbers.

What actually matters is that management was willing to sell a piece of the business at all.

It’s a first step toward cleaning up the business and giving the professional segment room to show.

(Small side note: in Q1 2026, the first quarter without VHC-IT, the IT segment’s operating loss already narrowed from $798k to $310k year-over-year.)

Still, without a concrete reason to believe they’ll keep improving the business and divesting the bad parts, buying the stock on this thesis alone would be mostly speculation.

If nothing further happens, this could simply become a cheap cash box, that stays at this price for a long time.

But then...

You’ve probably already guessed where this is going.

We got our confirmation.

The 8-K

On May 8, they released an 8-K. It’s short, but it says a lot.

Here’s the whole substance of the filing:

Let’s break this down.

They entered into an agreement with Peter Castle, the President of VasoTechnology (the IT segment.)

Castle can earn $175,000 if he helps Vaso achieve “specified corporate outcomes relating to potential strategic initiatives.” If the objectives are not met, he gets nothing.

A few questions come up: who is Peter Castle, and what “specified corporate outcomes” are we talking about?

Start with Castle, because he’s not just some random segment head.

He was President and CEO of NetWolves itself before Vaso bought it in 2015. He’d been with NetWolves since 1998, and he then served as Vaso’s Chief Operating Officer from 2015 until January 2025.

So he is THE person who knows NetWolves inside and out.

Putting a success-based incentive in front of exactly this person, for “strategic initiatives,” six months after selling the other half of his segment, is already interesting on its own.

But there’s more:

In the 2025 income statement shown earlier, you can see a $4.64 million goodwill impairment that dragged down the year’s results.

That impairment concerned precisely the NetWolves reporting unit inside the IT segment.

Because of the decline the business is going through, its carrying value on the books was higher than what it was actually worth, so Vaso had to write it down.

And even after the impairment, there’s still $9.7 million of goodwill sitting on NetWolves, a shrinking, money-losing business.

So put it together. We have an incentive plan, built around the key person behind NetWolves, the shrinking segment that just took a goodwill impairment and masks the good numbers of the professional segment, announced half a year after the other half of the IT segment was sold.

I’m leaning a bit out the window here, but I’m fairly confident you can read that “specified corporate outcome” as a sale or disposal of the remaining NetWolves business, just wrapped in careful corporate language.

A sale would bring in some cash, sure, but that’s not really the point. I think the bigger benefit is what it does to the income statement.

It clears out the noise and finally lets the GE segment’s $6–7 million of operating income show up on its own, instead of getting swallowed by IT and equipment losses.

And I don’t think the market missed this entirely either.

Right after the 8-K dropped, the stock jumped about 35%, you can see it marked on the chart above.

It’s just that the quarterly report a week later took all the excitement out and pushed the stock right back to where it was.

A nice opportunity.

Normalized Earnings Power

On a look-through basis, the GE segment alone has produced an average of about $6-7 million of operating income over the last three years.

Against a normalized enterprise value of only a few million dollars ($3–6 million once the cash rebuilds), that’s an EV/EBIT of around 1x or less for a stable, capital-light, contracted business.

Even against today’s un-normalized EV of ~$13.7 million, you’re paying about 2x.

However you slice it, this is cheap. The only reason it doesn’t look that way is the losses sitting around the professional segment, dragging the whole picture down.

Risks

GE concentration is the big one. The entire crown jewel hangs on one contract.

The original agreement was a three-year deal ending in 2013. It has been extended many times since. In December 2025, Vaso extended the GE agreement by another four years, through December 31, 2030.

So as of today, the good business has a clear contracted life through the end of the decade.

But there’s no guarantee it won’t be terminated early. If GE ends this contract, or worsens the terms, the whole thesis collapses.

Also worth noting, on the GE side, their imaging segment reported margin pressure in 2025. Segment EBIT fell by $71 million, driven by cost inflation, including new tariffs.

That’s not directly Vaso’s problem, but it’s not irrelevant either. If it pushes GEHC to raise equipment prices, hospital demand could soften, and Vaso would feel that pain secondhand.

Then there’s insider control. Vaso is firmly insider-controlled. Joshua Markowitz holds about 31.9% of the stock, and directors and officers as a group hold 43.85%. The company has never paid a dividend and states plainly that it doesn’t intend to.

There was one attempt at a liquidity event, the Achari SPAC, but that deal fell apart.

This is exactly why the clean-up activity, and the Castle incentive, matter.

They turn the thesis from just “it’s cheap” into “it’s cheap, and management is finally doing something.”

The failed Achari SPAC deal showed that this management thinks about strategic transactions and possible exits. The VHC-IT sale showed they’ll actually pull the trigger on a disposal.

Final Thoughts

I think Vaso is a perfect example of something that screens badly.

You have a good business overshadowed by bad ones. The profitability and growth of that good segment only becomes visible once you go into the filings and look at the actual numbers.

That’s probably a big part of why this opportunity exists in the first place.

A business consisting only of the professional segment would very likely be valued completely differently.

That’s exactly what makes the recent moves so interesting, the VHC-IT sale, and now the 8-K. They’re a step toward cleaning up this business and giving the professional segment room to finally show what it’s worth.

One last thing: the idea that NetWolves is being disposed of is my interpretation, not a confirmed fact. Nowhere do the filings say “we are selling NetWolves.” I could be wrong.

I hope you enjoyed this writeup.

Best,
Noel.

PS: I can’t take full credit for this discovery. A friend flagged this 8-K to me, I would have probably missed it otherwise. Thanks, Mike.

Disclaimer: The information provided in this newsletter is intended for informational and educational purposes only. It does not constitute financial, investment, legal, or tax advice. All analyses, opinions, and interpretations reflect my personal views at the time of publication and are provided without reference to the individual circumstances or objectives of any reader. All analyses, information, and opinions have been prepared with great care. Nevertheless, no guarantee can be given as to the accuracy, completeness, or timeliness of the information provided. Use of the content is at the user’s own risk. Investing in securities involves risk, including the possible loss of capital. Readers should conduct their own research and, if necessary, consult a qualified professional before making investment decisions.

• Capital light business with negative enterprise value.

• Cash position bigger than the entire market cap.

• Strong and consistent free cash flow.

• The founder and the entire board are buying stock in the open market.

I’ve had this one sitting on my watchlist for a while.

It turned up while I was working through every US-listed OTC stock out there, somewhere around 2,000 names.

Most of what you find doing that is bad.

Companies that have lost money for a decade straight.

Others have negative equity.

Some have business purposes I’d call questionable.

Not to mention the hundreds of busted biotech companies, or the countless shell companies that have no purpose at all.

But every so often you stumble across something interesting, and once in a while, across something cheap.

This one stood out in particular.

It’s an asset light business, and earnings translate into free cash flow almost one for one.

It’s sitting on a cash position worth its entire market cap, carries no debt, and trades at a negative enterprise value.

So you could argue you’re being offered the operating business for free.

While I was digging through their reports and press releases, trying to understand how the company had evolved and where it might be going next, I came across something that caught my eye.

The company had just announced that its CEO and all five non-executive board members planned to buy stock on the open market:

While there may be many reasons for insider selling, there’s only one reason for insider buying.

They think the stock is cheap.

And once you look at the price, it’s not hard to see why they’d think that.

So let’s take a look at this business.

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• 21.6% ten-year EBIT CAGR

• Last operating loss in 2005

• 7x earnings

In Chapter 8 of The Intelligent Investor, Ben Graham introduces us to Mr. Market.

He’s your business partner in the stock market.

Every day he shows up and offers to either buy your stake or sell you his, at whatever price he feels like coming up with.

Most days, his quotes are fine.

But some days, since he’s a little crazy, his quotes will be crazy too.

He will offer you a great stock at a ridiculously cheap price.

Our job is to sit back, be patient, and wait for those moments.

Today’s stock looks like one of them.

Mr. Market is offering a profitable manufacturer at 7x earnings and under 5x EV/EBIT.

The company has been profitable for 20 consecutive years, and the ten-year EBIT CAGR is 21.6%. Clearly not the numbers of a dying business.

What makes this interesting right now is the timing.

A new, more ambitious management team has recently taken over and has been focusing on the right levers. They have improved margins, cleaned up the balance sheet, reinstated the dividend, and improved efficiency across the board.

I wouldn’t call this a turnaround, as the business was never in trouble. Think of it more as a business that was already decent, now being run by people who want to make it even better.

The market hasn’t noticed any of that yet. Shares are sitting near their 52-week low, and you can buy the whole company for not much more than its net current asset value.

Let’s take a closer look at this crazy Mr. Market offer.

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• 30+ years of dividends.

• Consistently profitable since 2007.

• 5 back-to-back years of record revenue.

• 4.5x earnings.

• 0.49x book value.

In the 1880s, a young Thomas F. Braime was an apprentice at an engineering company in Hunslet, building steam traction engines.

One day, the machine got the better of him, and he lost his thumb.

Ambitious by nature, and if anything more determined after the accident, he started looking for better ways to apply oil to machinery.

The answer he came up with was pressed steel oilcans.

In 1888, he rented a small building in Hunslet and set up production.

The cans were good. They sold well and quickly built a reputation for quality. As the new motor industry started to grow, demand for his pressed metal grew along with it.

By the early 1910s the original workshop wasn’t big enough anymore, and larger premises were needed to support the first serious expansion.

So a large factory was built on Hunslet Road between 1911 and 1914.

Braime Group PLC

Ticker: BMT / BMTO | Market cap: £15.6 million

The family still runs the business out of that same building today, more than a century later.

For a long time, the company was basically just the pressings business. The real turning point, at least for understanding the company you can buy today, came in 1971, when they set up the “4B” division to serve the bucket elevator and conveyor market.

Then in 1984 they added an electronics range to 4B and opened their first international office, just outside Chicago.

And from there, the international expansion never really stopped.

They opened subsidiaries in France in 1991, then Thailand in 2003, Germany in 2005, South Africa in 2008, Australia in 2010, China in 2018, the UAE in 2023, Indonesia in 2024, and Canada in 2025.

Today the 4B division makes up 89% of sales. It produces and sells everything you need to move and monitor bulk materials safely and efficiently.

Things like elevator buckets, belts, chains, sensors, monitoring software, and other components.

Their customers range from farmers and silo operators to ports and cement plants, basically anyone who moves heavy stuff.

The original Braime pressings segment is still around, though much smaller now at 11% of revenue.

They still make precision metal pressings, mostly for the automotive and construction industries.

And even though the two segments sound pretty different, they’re more connected than you’d think. Almost half of what Braime Pressings produces is sold internally, like bolts and steel buckets that feed straight back into the 4B division.

So even though Pressings looks fairly small and unimportant from the outside, it’s strategically useful, and management says as much:

“The board believes the business continues to add strategic value through its supply to the 4B division and complementary engineering expertise.” – 2025 annual report

The Numbers

Aside from a small dip in 2019 and 2020, revenue has grown pretty consistently for the past decade.

The last five years have been particularly good. Every single year from 2021 through 2025 set a new revenue record.

Gross profit has moved roughly in line with revenue, and operating profit looks a touch better, because margins have slightly improved over a ten-year window.

One thing I really want to highlight is the consistency here.

Braime has been profitable every single year since 2007. And they’ve paid a dividend every year for 34 years, with the only real gap being the years leading up to the financial crisis.

It’s not a huge dividend, at 16.50p per share for 2025, that works out to a yield of 1.9%, but they’ve raised it gently every year.

I think that kind of consistency says a lot, especially for a company this small.

Another thing I want to touch on, because I think it matters for understanding this business, is how their revenue is actually built up.

Especially when it comes to geographic diversification.

As you know by now, the 4B division is the backbone of the business.

What you might not know is where that revenue comes from.

The division has operations in the UK, France, South Africa, Australia, Thailand, Indonesia, Canada, China, the UAE and the United States, which gives the company a nice spread of demand across very different markets.

The positive effect of that becomes clear when we look at the numbers over the past two years.

In 2025, the Australasia region was down 1.8%. But the UK, Europe and the Middle East, the Americas and Africa all grew.

Africa was especially strong with 15.7% growth.

Which allowed the company to record 4.1% overall revenue growth for the year.

In 2024 the story was no different.

Revenue was basically flat in the Americas and Europe, but Africa and Australasia grew 16.6% and 14%, which again delivered a record year with 1.64% total growth.

So in both years, even though some regional markets were stagnant or shrinking, the company still managed to grow in absolute terms.

That shows that their expansion strategy works out quite well and is doing exactly what it’s supposed to.

And they’re still at it. In September 2025 they opened a new subsidiary in Canada to go after the grain market there.

Balance Sheet

As of 31 December 2025, there isn’t much to complain about on the balance sheet.

They hold a healthy amount of cash, carry little debt, and the whole thing reflects patient and conservative financial management.

Equity has compounded at 11.17% a year over the past decade, and almost all of that came from retained earnings.

The strategy that got them here

Since the 1980s, Braime’s core strategy has been growth through expansion.

But that doesn’t always mean opening a new office.

In 2024 it meant buying four acres of land next to their US warehouse in Illinois. In 2025 it meant opening a subsidiary in Canada. And it meant buying their main supplier for electronic components.

„Our strategy is to invest in increasing our market reach while continuing to develop new products.“

The Acquisition

This is probably the most important thing to have happened to Braime in years, and it’s worth going through properly.

For more than 40 years, a small company called Don Electronics was Braime’s main manufacturing partner for electronic monitoring components.

In plain terms, Don designed and built the electronics that go into the 4B product range.

“Don have been our longstanding partners for over 40 years, responsible for the creation and manufacture of our range of electronic products.”

And as is always the case, whenever Braime bought electronics from Don, they were also paying Don’s profit margin as part of the price.

So on the 31st of March 2026, Braime bought Don Electronics outright, to bring that in-house and keep that margin instead of paying it out.

Don Electronics itself owns 100% of Synatel Instrumentation, a business that specializes in level controls, sensors and safety control systems for hazardous environments, which fits right into the 4B product range.

In the year to 31 March 2025, the two businesses together did £10.6m of revenue and £2.0m of profit before tax. Don did £7.1m of revenue at a 22.5% pre-tax margin, and Synatel did £3.5m at an 11.4% margin. Combined, they had about £6.1m of net assets.

Two solid little businesses. Acquired for strategic reasons.

Here’s what Braime paid:

The £5.0m cash payment at completion was funded by a new £5.2m HSBC term loan, with a 41-month initial term to August 2029, amortised over seven years at the BoE base rate plus 2.6%. The £4.9m of deferred consideration gets paid off at £750k a year for three years, with the remaining £2.65m due six months after the third anniversary, accruing interest at base rate plus 3%. The contingent consideration of up to £1.6m is payable in years 4, 5 and 6, but only if the businesses hit certain profit targets.

On the fair value of consideration of about £11.5m against combined pre-tax profit of £2.0m, Braime is paying 5.75x PBT. If you assume a 25% tax rate, that’s 7.7x post-tax earnings.

On book value, £11.5m is 1.9x the £6.1m of combined net assets.

New Structure

The acquisition has a few other implications that I’d like to highlight here.

First, it gives Braime more control over its supply chain and removes a key dependency in the most important part of the business.

“The acquisition of the Group’s principal manufacturer of electronic components brings the supply of this important product under the Group’s control.”

Second, and this ties directly into the first point, it gives Braime control of product development. The company has said again and again that a lot of its recent growth has come from new electronic products, so owning that development process rather than relying on an outside partner is a clear advantage.

„These businesses also further strengthen and enhance the Group’s capabilities to bring new designs to market, in line with the Group’s strategy for continually developing innovative end-user products.“

Third, it captures Don’s margin and keeps it inside the group. This is probably the most important point, so I want to walk through the numbers.

What it could do to earnings

Before the acquisition, Don was selling electronics to 4B at a price that included Don’s 22.5% margin. Then 4B sold those products on to end customers at its own margin on top of that.

After the acquisition, those Don-to-4B sales become internal and get cancelled out on consolidation. What’s left is Braime’s revenue from external customers, and on the cost side, only Don’s actual production cost rather than the marked-up price 4B used to pay. The difference, which is Don’s old margin, now stays inside the group.

The announcement makes this exact point:

“This acquisition (...) will strengthen the Braime Group by securing this important source of supply, and by adding the margin made on the manufacturing of these products to the margin already made on the distribution and sales of our 4B electronic products.”

So if you hold the rest of the business flat and just layer the acquisition on top, the profit picture changes something like this:

One side note: the real 2026 numbers will look a bit different, because the deal only closed on 31 March 2026, so it will only be in the accounts for nine months of the year. I’ve also kept the core business completely flat, which is conservative given that revenue has grown for five straight years. And the £250k of acquisition costs is a one-off, so the underlying run-rate is actually a bit higher than what’s shown here. The calculation is just meant to give a rough sense of how the acquisition improves the earnings picture going forward.

What it does to the balance sheet

Before the acquisition, Braime’s balance sheet carried essentially no goodwill. That changes with the Don Electronics deal. With the fair value of consideration at about £11.5m against £9.0m of fair value net assets acquired, the deal adds ~£2.5m of goodwill.

On the asset side, you also get the £9.0m of fair value net assets added in.

On the liabilities side the change is more noticeable. You’ve got the new £5.2m HSBC loan, plus £4.9m of deferred consideration and around £1.6m of contingent consideration, so close to £11.7m of new obligations sitting alongside the existing debt.

You could say the extra ~£500k+ in profit each year comes to a certain extent from a more leveraged balance sheet.

Though that doesn’t account for the other, more structural benefits the acquisition brings.

The last thing worth saying is that the integration risk here is very low. These businesses have worked together for over 40 years, so there are no surprises about how they’re run and no friction about how decisions get made.

„The board is cognizant of integration risks and challenges that an acquisition brings. These are partly mitigated by the long-standing relationship between the parties and the contingent element of the consideration for the acquisition.“

Valuation

Over the past ten years, Braime has traded at an average of 14.7x earnings and 1.4x book value.

Neither is anywhere close to where it sits today.

At a blended market cap of £15.6m, the business trades at 5.8x earnings and 0.63x book value. But because of Braime’s dual share structure, that blended number isn’t really what you’d pay.

There are two classes of shares in issue:

480,000 Ordinary Shares

960,000 A Ordinary Shares

The only difference is that the A shares carry no voting rights. The claim on earnings, equity and dividends is exactly the same.

Economically, they’re identical.

But they trade at very different prices.

I’m focusing on the A shares here, because that’s where the discount is biggest.

So what you’ve got is a stable, profitable, consistently growing business with no dilution, decades of dividends, and an acquisition that should lift earnings further.

And yet it trades at multiples that look like the market is pricing in some kind of disaster.

The obvious question is: Why?

Why it’s cheap

As far as I can tell, there’s nothing actually wrong with this business. Operationally it’s fine.

The reasons for the low price are elsewhere.

Take a look at the chart:

You’ll see that even though the stock had been volatile before, the real decline started right at the beginning of 2023.

‘Coincidentally,’ that’s exactly when the company announced its CEO transition.

On the 30th of January 2023, Braime announced that its long-serving CEO, Nicholas Braime, would step down. He’d held the role since 1987, a run of 36 years.

He knows the company inside and out, led it through decades of growth, and built close relationships with key suppliers along the way.

It’s completely normal for news like that to make investors nervous. If you don’t know much about the company or who’s taking over, the idea of losing that kind of experience and those relationships would worry anyone.

But the situation might be different than it first appears.

We know this business has been passed down through the family for generations, and it’s still in the founding family’s hands 138 years later. It’s basically a family heirloom that has fed the family for over a century.

I think it’s safe to assume they care about it deeply, and I think their actions back that up.

And looking more closely, the CEO transition doesn’t look like Nicholas simply walking away into retirement and being done with the business.

He remains Executive Chairman of the board, while his two sons Carl and Alan Braime, both of whom had been involved in the business for years, took over as joint CEOs. Both hold a substantial stake in the company.

So this isn’t Nicholas stepping aside.

He’s 76 years old. The thought process was probably something like: “I don’t have endless years left, so I’d rather hand the business over now, while I can still guide it as chairman, than keep going until I can’t and then figure it out from there.”

Carl and Alan also seem well suited for the role.

Carl has been with the group since the early 2000s as Group Sales Director, and Alan qualified as a chartered accountant at KPMG, spent four years there, and then joined the board in 2010 as commercial director.

„Both [Carl and Alan] have been on the Board since 2010 and have both experience and complementary skills... Together they are uniquely suited and well placed to transition the Group to its next phase of growth.“

So we can say this looks more like a planned, thoughtful succession, rather than a rushed handover into unfamiliar hands.

A further reason for the discount (this is more speculative) may be the broader macroeconomic environment, especially in Europe.

Since 2023, management has repeatedly voiced concerns about rising energy prices, the war in Ukraine and global tensions. They feared these factors could slow investment activity among customers and hurt margins.

I don’t want to get political or share macro opinions here (there are people far more qualified for that than me). But I think it’s worth pointing out that even though they’ve been nervous about their own numbers every year since early 2023, they’ve gone and posted back-to-back record revenue anyway.

That’s quite something in times of uncertainty.

And this ties back to Braime’s global diversification.

They are giving this same cautious outlook for next year as well.

„Today the current global economic background is significantly worse than 12 months ago and we are likely to face both inflation in costs and a reduction in investment led global demand due to increased business uncertainty.“

This misreading of the situation, or overreaction to it, pushed the share price down to levels last seen in 2017.

It’s a bit strange to look at what has actually happened to the business since then.

Since 2017:

Revenue is up 62%

Operating profit is up 90%

Net profit is up 70%

Book value has more than doubled, up 127%.

Revenue is more diversified. They’ve added subsidiaries in China, the UAE, Indonesia and Canada. And with the Don Electronics deal, the company now owns far more of its own value chain.

Which highlights the absurdity of the valuation.

A couple of other things

First, there is a point to be made about capital allocation.

I know management is very keen on their growth and expansion strategy, and rightly so. They’ve executed it well for decades and the recent acquisition came at a reasonable price.

But at 4 to 6x earnings, there’s a fair argument that buybacks would be a better use of capital right now.

Though to be fair, part of what they paid on the acquisition was likely a control premium, which you’d have to factor into that comparison.

Second, regarding other risks.

Even though I think this is a stable, well-run, diversified business, it’s not risk-free. There’s some integration risk on the acquisition, even if it’s lower than usual given the 40-year relationship. There’s the CEO transition, which I’ve already covered. There’s foreign exchange risk from operating across so many currencies, though they hedge where it matters. And there’s the broader macro backdrop, which management keeps reminding everyone about.

Final Thoughts

If you’ve been reading this blog for a while, this company might look a little familiar. That’s because I actually wrote about them a year ago. I don’t normally do this. In fact, this is the first time I’ve ever written about a stock a second time, as I like to provide new value with every writeup.

But the situation here has changed so significantly through the recent acquisition that I simply had to. This wasn’t just some special dividend where the rest of the thesis stayed the same. There were real, meaningful changes. And after reading my old writeup, I thought I really could provide additional value.

I liked it back then. I like it more now.

It’s a classic case of cheap because the market is misunderstanding the situation.

And as Burry said:

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Disclaimer: The information provided in this newsletter is intended for informational and educational purposes only. It does not constitute financial, investment, legal, or tax advice. All analyses, opinions, and interpretations reflect my personal views at the time of publication and are provided without reference to the individual circumstances or objectives of any reader. All analyses, information, and opinions have been prepared with great care. Nevertheless, no guarantee can be given as to the accuracy, completeness, or timeliness of the information provided. Use of the content is at the user’s own risk. Investing in securities involves risk, including the possible loss of capital. Readers should conduct their own research and, if necessary, consult a qualified professional before making investment decisions.

At less than 1x EV/EBIT, 0.50x book value, and about 1x EV/normalized free cash flow.

I found it by going through all the OTC stocks one by one.

I do this from time to time.

What stood out to me first was the huge cash position. It’s bigger than the entire market cap, which is why the Enterprise Value is so low.

Now revenue wasn’t exactly growing here.

I wasn’t necessarily a fan of this, but I guess that's part of why it’s this cheap.

The brand and the valuation were still interesting enough to keep reading.

So I dug into the filings.

And I found something that I liked.

Buried in a small side note, not highlighted at all, was a tiny piece of information that wasn’t there last year. Something that could point toward a potential expansion and revenue growth.

Management did not call attention to it at all. In fact the MD&A is about as minimal as it gets. And based on the fact that the share price has not moved, I am fairly confident almost nobody else has noticed it yet.

So here you have a business trading at a very cheap valuation, priced for zero future growth, with a potential kicker on the horizon that could change the whole story.

Let’s take a closer look.

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• 5.5x earnings

• 3.7x EV/EBIT

• 0.70x Book

• Net cash

People like to say the easy money is gone.

That the internet killed market inefficiencies.

That Buffett’s early results, when he was compounding at 50% buying obscure companies nobody had heard of, could never be replicated today.

I disagree.

The inefficiencies are still out there.

They are just hiding in the small and microcap space.

The space too small for major institutions, and where finding something requires a ton of work.

And a ton of tracking.

To get a real edge, you basically have to build yourself a universe of small stocks and follow them over time. Track new filings, changes in the business, or other shifts in the numbers.

That way you can react when a new piece of information enters the market.

That is how today’s stock became interesting to me.

I have had this company on my radar for quite a while. As part of my microcap universe.

It went through a rough patch in early 2024, when demand from one customer softened, but that is now behind them.

In fact, the business is in better shape today than before.

The company is now generating record revenue, record earnings, and record book value.

And yet the stock still trades at 5.5x earnings, 3.7x EV/EBIT, and 0.70x book value. With net cash on the balance sheet and operating leverage that is still building.

Let’s dig in.

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• P/E: 4.1x

• EV/EBIT: 2.6x

• Net cash, no debt

• Share count down 26% over three years

In investing, there are few combinations better than this:

A CEO who genuinely understands capital allocation and thinks like an owner.

A business that is growing and generating real cash.

And a share price that has not caught up to either of those things yet.

That is what I think I have found here.

The CEO came in a couple of years ago, looked at the business, and started making the right calls.

He shut down a subsidiary that was dragging on margins and had never recovered from COVID. He shifted the business away from low-margin contracts toward higher-margin work.

Then, when the shares were trading cheaply, he borrowed money at 8% to buy them back at an attractive earnings yield. After that, he paid the debt back as fast as the cash came in, and started growing the dividend as soon as it was gone.

That is not a complicated playbook. But very few actually follow it.

The underlying business has been growing in the meantime. The share count is down 26%, revenue is up meaningfully, margins have expanded, and earnings are growing.

Today the shares trade at a P/E of 4.1x and an EV/EBIT of 2.6x.

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• 0.53x NCAV

• 1.42x EV/EBIT

• 0.42x Book

• No Bank Debt

In the 1950s, Warren Buffett was compounding at 50 to 60% a year.

He has called it the best decade of his investing life.

And he was not doing it by finding great businesses at fair prices. He was doing it by buying cigar butts.

Stocks so cheap, they trade below what you would get back if you simply liquidated the whole thing.

The name comes from the image itself.

Picture someone walking down the street, smoking a cigar, and tossing it before it’s finished. Most people step over it. But someone picks it up, because it still has one puff left. And because they found it on the ground, that last puff costs them nothing. It is pure profit.

The business might not be growing. It might not be pretty. But the price is so low that even in a wind-down, you come out ahead.

Today’s stock is exactly that.

A cigar butt, in the most classic sense.

A profitable business trading at a meaningful discount to its own liquidation value.

And there is one more thing.

The insiders are buying.

The family that controls this company has been purchasing shares on the open market at prices close to where the stock trades today.

Insider selling can happen for all kinds of reasons, but insider buying basically means one thing: they think the stock is cheap.

At 53% of net current asset value and 1.4x EV/EBIT, it is not hard to see why.

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Passat SA

Ticker: ALPAS (formerly PSAT) Market cap: €17.3M

Passat is a French micro-cap. And it’s in a business you’ve probably subconsciously noticed somewhere before.

It’s called “image-assisted selling.”

This is not teleshopping in the TV-channel sense.

They place video screens directly inside French retail chains like Carrefour, Leclerc, and Castorama. The screens play short product demos. A shopper walks by, sees the product in action, and buys it right off the shelf.

Passat doesn’t own a single store, and they don’t run checkouts. They curate the product catalog, make the videos, set up the displays, and stock the retailer’s shelves.

The company was founded in 1987 and sources consumer products from around the world: kitchen gadgets, cleaning supplies, garden tools, hand tools, hair straighteners. Things that sell for €10 to €50.

In 2022, Passat acquired 65% of a French-Belgian group called Best of TV.

Best of TV operates in the same image-assisted selling niche but with complementary products. Today it generates about 40% of group revenue and most of the group’s operating profit.

Outside France, Passat has small operations in Spain, Portugal, and the US. The US business is effectively a single product, a branded chimney-sweeping log, sold through a commercial agent. It’s highly seasonal and has been slowly shrinking for years.

The Income Statement

This is the least attractive part of the story, and there are a couple of things worth understanding before we look at the numbers.

The operating reality inside Passat has shifted since the Best of TV acquisition in 2022. For the better, I should add.

The segment breakdown makes that clear:

France, the business Passat has been running for 37 years, swung from 1 million operating profit in 2023 to a €0.6 million operating loss in 2024.

Without Best of TV, which was only acquired three years ago, the group picture would look considerably worse.

In 2024, Best of TV contributed €26.1 million of revenue and €2.1 million of operating profit. It is now the single largest profit contributor in the group.

The US business has basically halved its operating result since 2016.

It was net loss making at the bottom line in 2024 due to goodwill and financial impairments on the US holding structure.

And then there’s the Echelon Fit joint venture. Passat bought into a connected fitness business (bikes, treadmills, rowing machines) during COVID lockdowns, basically at the peak of the at-home fitness cycle. The timing was about as bad as it gets. Passat has already booked a €3.4 million provision against its carrying value.

Now to the full picture:

Consolidated revenue was €42 million in 2016, dipped to €34 million in 2018, climbed back to €42 million by 2022, and jumped to €64 million in 2023.

That jump was entirely due to consolidating Best of TV.

Management said so themselves, on a like-for-like basis, 2023 revenue was actually down 4% from 2022.

“Consolidated revenue of €63,956,000, up 53.5% from 2022. On a like-for-like basis (excluding BEST OF TV), revenue decreased by 4%” – 2023 annual report

Since the acquisition is now in the base, revenue has been stagnant. The first half of 2025 grew 2.7% yoy, but that’s inside the noise band.

What deserves a bit more attention is what’s happening to margins.

Operating margin has compressed from 7-9%, to 4.4% in 2024, and just 1.9% in H1 2025.

The reason is that Best of TV runs with higher marketing spend and more freight than the legacy Passat business. On top of that, group personnel costs and external expenses are rising.

The underlying message is that the acquired BOTV business, now the group’s main profit contributor, runs at a structurally lower margin than legacy Passat France did when it was functioning well.

So one could say the group has in effect traded volume and diversification for margin density.

H1 2025 confirms the trend. France operating profit was €551,000, down from €995,000 a year earlier. Headline net income turned positive (€0.35m vs a €0.18m loss) but only because H1 2024 included a €921,000 one-off impairment on the US Echelon stake.

However, since the US chimney log business is seasonal and runs its commercial season from October through January, H1 doesn’t really factor in results from the US business. H2 should look better because of that, on a net income basis.

The company also mentions this themselves in their half year report:

“The marketing campaign only starts in October and ends in January, so sales of this period are not significant.”

But seasonality doesn’t explain what’s happening in France.

That said, despite the recent pressure, the group has been operationally and net income positive every year since at least 2009. That’s not nothing.

The Balance Sheet

This is where Passat gets interesting.

At the end of H1 2025, Passat was sitting on €22.2 million in cash and marketable securities. The whole company trades for €17.3 million.

And there’s no bank debt. Management repeats the same sentence in every annual report they publish:

“The Passat Group presents a healthy balance sheet, characterised by zero short-term and long-term bank indebtedness.”

That has been true for at least ten years.

Now, there are about €8 million of items on the balance sheet that look like debt at first glance. When I first saw them, I assumed they were loans taken out to finance the Best of TV acquisition.

But they aren’t.

The €5.1 million is a put commitment related to Best of TV. It represents the present value of Passat’s future obligation to buy the remaining 35% of Best of TV from the minority shareholder. So that’s no debt, and it doesn’t compound. In fact, it actually shrinks each year as BOTV pays dividends to that minority holder.

The €2.9M are simply lease liabilities related to capitalized office, warehouse, and car fleet leases.

The real bank debt is zero.

Economically, you have a company with €22 million in cash, no real debt, and about €8 million of operational and accounting liabilities.

What’s really interesting is when we look at current assets relative to total liabilities.

Passat trades at roughly half of net current asset value. A 47% discount, to be exact.

That provides a lot of downside protection. It also means there’s a lot of ground to cover just to get back to liquidation value.

What makes it even more interesting is that the founding family seems to know the stock is cheap.

The Insiders Are Buying

The Broszio family runs this company.

They’re German, based in Hamburg, and collectively own about 69% of the shares and 76% of the voting rights. Borries Broszio, now 81, was CEO for years before handing the role to his son Robin.

Both have been buying shares on the open market.

The March 2026 purchases are the interesting ones.

In April 2024, Borries donated most of his personal shareholding to his two children as part of a family succession plan. His personal stake dropped from over 25% to under 6%.

So when he goes back into the open market in March 2026 and starts buying again, that’s a deliberate choice to rebuild a holding he had largely given away.

The long-run pattern is therefore: the family has repeatedly bought in size when the shares are at or below €5.

Capital Returns

Passat does not have much of a history of returning capital. They do not pay dividends and have no significant history of buybacks.

The first real buybacks happened in 2024. Passat repurchased 21,285 shares at an average price of €4.84.

That’s a signal, taken together with the insider buying, that management thinks the stock is cheap. But it sits in odd contrast to the size of the cash pile.

And the cash pile is not a new development. It has been large for over a decade. It grows, more or less steadily, but most of the time it just sits there on the balance sheet. It earns money-market yields and generates roughly €1 million per year in net interest and investment income, which flatters reported earnings. But it has not been returned to shareholders in any meaningful way.

That is the part that concerns me. Given who controls the company, my fear is that the family treats this cash as a kind of personal savings account.

Valuation

With 3.93 million shares outstanding at €4.40, the market cap is €17.3 million.

The balance sheet carries €22.2 million in cash and marketable securities and zero bank debt. The €8 million of long-term liabilities, as we discussed, are operational and accounting items. Not financial debt in any real sense.

On a straight market-cap-minus-cash basis, the enterprise value is negative. Add back the lease liabilities and the Best of TV put as economic obligations, and the adjusted enterprise value lands at €3.3 million.

That gives you a stock trading at 1.42x EV/EBIT and 0.53x P/NCAV.

Even in a stressed liquidation scenario, the per-share recovery should exceed today’s market price.

The stock also looks cheap on a traditional screen. It has a P/E of about 10, and a price to book of 0.42. But those multiples don’t capture what’s really going on.

Why It’s Cheap

A few reasons come to mind.

First, it’s a small French micro-cap with no English filings. The market cap is €17 million, there is no analyst coverage, and all annual reports come out in French only. You can work with Google Translate and get the broad strokes, but the subtle accounting points probably still get lost.

So the bar to even understanding the business is high relative to the reward, which is a small absolute amount of alpha on a €17M market cap. But hey, alpha is alpha, right?

Second, Passat voluntarily downlisted in October 2025. The company moved from Euronext Paris to Euronext Growth Paris, a less regulated market. The ticker changed from PSAT to ALPAS. This probably saves another hundred thousand euros a year in listing fees and cuts regulatory overhead.

Third, the absence of capital returns. Yes, there have been some small recent buybacks, but relative to the cash position they are pretty much peanuts. And the massive cash pile has grown undistributed for a decade.

Fourth, there’s no real catalyst. The Broszio family controls 76% of the votes, which makes an activist campaign near impossible. The 2024 succession transfer, where the founder passed most of his shares to his two children, signals multi-decade continuity, not an exit event.

The flipside of that is a controlling family with a genuinely long time horizon and a conservative approach to the balance sheet.

Finally, a smaller point but worth mentioning. Most screeners flag the Best of TV put liability as debt. If you don’t go through the actual filings, there is no way to know the company carries zero bank debt.

Risks

The biggest risk is simply that this never moves. The cash pile has been on the balance sheet for a decade, and the family controls most of the votes. So the stock could trade at half of net current asset value forever. If it does, you’ll earn incremental book value from retained earnings, but not much more.

There is also a certain customer concentration, though that also comes with the business model. The top client is 21% of group revenue, the top five are 52%, and the top ten are 71%.

French core erosion also needs to be mentioned. The French standalone entity swung to an operating loss in 2024 and has continued to weaken in 2025. Without Best of TV, the whole group would probably be losing money at the operating level. If the French core keeps slipping, the cash pile will eventually stop growing.

Finally, the Best of TV purchase liability is real money that will eventually leave the balance sheet. Passat is obligated to buy the remaining 35% of Best of TV at some future point. The €5.1 million is already booked as a liability, so it is not a surprise to the numbers, but the cash still goes out the door when the time comes.

Final Thoughts

I spend a lot of time looking for stocks like this.

The honest truth is that I have very little interest in writing about something that already been written up ten times.

Not because I think those ideas are bad, but because being the hundredth person into a stock is just a fundamentally different proposition than being the first.

By the time an idea has made the rounds, the easiest part of the return has usually already happened.

What I am really looking for is the stock that nobody has written about.

This time, that search led me to Passat.

When I did my research, it reminded me of some of Buffett’s early investments. Union Street Railway. Sanborn Maps. Situations where the operating business was secondary and the balance sheet was the whole story.

Passat fits that category. The operating business is small, niche, and stagnating. The family controls the company and is not going to hand the cash back to shareholders on any schedule that suits you.

But the valuation is what makes this a cigar butt worth picking up.

At half of net current asset value and 1.4x EV/EBIT, for a profitable business with a strong balance sheet and insider buying, the downside is well defined. And a correction back toward NCAV is the upside.

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Disclaimer: The information provided in this newsletter is intended for informational and educational purposes only. It does not constitute financial, investment, legal, or tax advice. All analyses, opinions, and interpretations reflect my personal views at the time of publication and are provided without reference to the individual circumstances or objectives of any reader. All analyses, information, and opinions have been prepared with great care. Nevertheless, no guarantee can be given as to the accuracy, completeness, or timeliness of the information provided. Use of the content is at the user’s own risk. Investing in securities involves risk, including the possible loss of capital. Readers should conduct their own research and, if necessary, consult a qualified professional before making investment decisions.

• 7.6x earnings

• 3.5x EV/FCF

• No debt

• Aligned management

“The heads of many companies are not skilled in capital allocation. Their inadequacy is not surprising.” – Warren Buffett, 1987 Letter to Shareholders

Most CEOs are good operators.

They know their industry, they know their customers, they know how to run the day-to-day. But when it comes to deciding what to do with the cash the business generates, a lot of them lose the plot.

They overpay for acquisitions, chase growth for the sake of growth, and make promises to shareholders they never intend to keep.

The result is that shareholders pay the price.

That’s why it matters when a management team does the opposite.

When they buy back shares at cheap prices, when they grow the dividend, and when they have the discipline to say no to deals that look exciting but rarely work out.

The company I’m writing about today does all of that.

What really caught my attention was something I read in their annual report.

Management wrote that they would not follow what they called “the myriad mistakes of the sector where many acquisitions have failed to deliver promised synergy or value-add, thereby inflicting at best, large scale devaluation of shareholder funds and at worst, total destruction of shareholder value.”

I’ve read a lot of annual reports. I don’t remember reading something like that before.

And then there’s the valuation. The stock trades at 7.6x earnings and 3.5x EV/FCF, with zero debt, a 6.2% dividend yield, and buybacks that have reduced the share count by 14% in two years.

Put the dividends and buybacks together and the total shareholder yield is running in the double digits.

Revenue is backed by a long-term order book and recent contract wins.

So in short, you’ve got management that understands shareholder value, a cheap valuation, and a clean balance sheet.

Let’s get into it.

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• 0.74x net cash

• 0.50x NCAV

• 7.7x earnings

• Buying back shares

Anytime you find a profitable, US-based business trading below net cash, you should stop everything and take a closer look.

Because that kind of valuation does not exist in private markets.

That is something you only get in public markets when something is either extremely overlooked or extremely out of favor.

With this business, it is the first one.

The business is extremly overlooked.

There are no writeups on this anywhere.

Not on Substack, not on Seeking Alpha, not on Value Investors Club. Nowhere.

The business itself is not exciting. It does not make anything you would read about in the news, and it has nothing to do with any hot trend.

But the valuation is exciting.

And that is enough for me.

It trades at 50% of NCAV and even below net cash.

26% below net cash, to be precise.

The business has no debt and management is buying back shares, which is probably the best use of capital at a valuation like this.

And it is profitable, trading at 7.7x earnings.

At this price, every share of inventory, every customer relationship, every piece of equipment, and every dollar of future earnings is being handed to you for free.

Actually, better than free. You are effectively being paid to take it.

Let’s take a closer look.

Angstrom Technologies, Inc.

Ticker: AGTT Market Cap: $2,031,807

Here is the one-line version: Angstrom makes fluorescent chemicals.

These go into things like inks, varnishes, toners, paints, and adhesives. The company also makes some of those finished products itself, like inks and toners.

On top of that, they make patented fluorescent detectors. These can identify or authenticate materials using light. Think security printing, things like banknotes or packaging with hidden fluorescent markers, industrial quality control, and specialty coatings.

The company is based in Florence, Kentucky and has been around since 1983.

Revenue breaks down into three buckets:

Chemicals are the core at 71.6%. Toners and inks are second at 26%. And hardware, meaning the detectors, is a small but steady contributor at 2.4%.

The Dark Years

Before we look at the numbers, there is one thing you need to understand about this company.

For a stretch of time before 2022, Angstrom was a non-reporting or “dark” company. Meaning it filed no public financial disclosures for an extended period.

During this time, the stock price collapsed to near zero, as there was no public financial information for investors to evaluate the company’s value or health.

Then, on January 14, 2022, the lights came back on. Angstrom filed its first reports in several years, publishing its annual reports for FY2019 and FY2020 retroactively.

The stock began to recover as investors processed the news that the business was still alive and generating cash.

Since then, the company has filed annual reports for each fiscal year through FY2025 (with the FY2025 report issued in February 2026), demonstrating a consistent commitment to ongoing disclosure.

But consistent does not mean communicative. Shareholder communication is basically nonexistent beyond the bare minimum required. They don’t provide an outlook or commentary in the annual reports.

They do publish short quarterly financial summaries, just the numbers with nothing attached, but those only go back to when they started filing again in 2022. Nothing retroactive for the years before that.

I also could not find any annual reports predating 2018. I do not know where they were filing before, but I doubt it was with the SEC because there is nothing in the archives.

That makes it genuinely hard to say how long the dark period actually lasted. My best guess is it was not longer than a year, because the stock did not stay at rock bottom for very long. But I cannot say that with confidence because the records simply are not there.

The one thing I did find was through the Internet Archive.

Their website shows regular news updates going back to at least 2013.

You can see a snapshot from 2017 here:

https://web.archive.org/web/20170703151659/http://angtech.com/News.aspx

However, even that doesn’t tell you much, as they don’t disclose any new figures.

I want to be upfront about one thing. The absence of earlier reports made this analysis harder than it should have been, especially on the income statement side. The balance sheet is very attractive and straightforward. But there have been some meaningful developments on the income statement over the years, and I would have liked to put those in context with older filings.

The Balance Sheet

The balance sheet is the most attractive part of the Angstrom story.

As of October 31, 2025, it looks like this:

There is no debt at all. The company has no bank loans, no bonds, and no convertible notes.

The $337K in liabilities are entirely operational, just payables and accruals.

Cash alone is $2.74 million. The entire market cap is $2.03 million.

Even if you subtract the $337K in liabilities, which again are not financial debt, the stock still trades below net cash.

Conservative net cash: $2,744,498 − $337,372 = $2,407,126

Against a market cap of $2,031,807.

Total current assets come in at $4,442,028.

Subtract the liabilities and you get an NCAV of $4,104,656.

So the stock trades at 0.50x NCAV.

Let that sink in.

Now, I think management knows exactly what the stock is worth. Because they have been buying it back:

FY2023: $50 in treasury stock purchases

FY2024: $27,555 in treasury stock purchases

FY2025: $58,360 in treasury stock purchases

While the dollar amounts are small in absolute terms, the pace is accelerating. As a percentage of market cap, $58K represents about 2.9% of the entire company being retired in a year.

When a company trades below its own cash balance, buying back stock is about the most rational thing management can do.

The Income Statement

This is where it gets complicated.

The table below shows the full income statement summary from 2018 through 2025. That is everything available. You need this long view to understand what has been going on with the business.

From FY2021 through FY2024, the company reported operating losses every single year.

FY2021 looks like an exception at first glance, with net income of $507K. But strip out $446K in PPP loan forgiveness and $235K in CARES Act Employee Retention Credits, and that year is a loss too.

FY2025 is the first genuinely profitable year since 2018 and 2019.

And the stock trades at 7.7x those earnings. Given the cash position and the discount to NCAV, that is cheap.

But the obvious question is whether the profitability is real and whether it will last.

That is the main question here. And I will be honest, I do not have a clean answer. I have a theory, and I will walk through how I got there. But parts of this are speculation, and some management commentary would go a long way toward filling in the gaps.

That said, the absence of that commentary is probably part of why the opportunity exists at all.

Here is what I think happened:

The Margin Mystery

The key to understanding everything here is the gross margin.

Before COVID, gross margins were above 50%. In FY2018 they came in at 56.2%. FY2025 shows 58.8%, almost exactly the same level.

Something happened in between that made margins significantly worse for five straight years. The worst was FY2024 at 40.2%. Those weaker margins worked their way straight through the income statement and into the losses you see above.

When I first looked at this, I thought it was an inventory problem.

Back in 2018 and 2019, Angstrom was sitting on over $3 million in inventory. My initial theory was that old, expensive inventory was working its way through the income statement, and under FIFO accounting, that high-cost material was keeping margins depressed for years afterward.

But I dropped that idea.

It didn’t really make sense from an accounting perspective for several reasons.

So I went looking for another explanation.

I looked at price indices as proxies for what was happening on both sides of Angstrom’s business. What they pay for inputs, and what they can charge for outputs.

For input costs, I used two PPI series. The Basic Organic Chemicals index (WPU0614) and the Cyclic Intermediate Chemicals and Dyes index (WPU061402). These track the kind of chemical intermediates that go into fluorescent dyes and pigments, which is likely what Angstrom is buying:

For output prices, I used the PPI for Synthetic Dye and Pigment Manufacturing (PCU3251332513). This tracks what manufacturers in this space charge for finished products, which gives a rough proxy for what Angstrom can charge:

When I put these together, the margin picture started to make sense.

During COVID and the years that followed, input prices rose faster than output prices. You can see the sharp rise in the Basic Organic Chemicals index while the output index climbed more slowly.

The spread between what Angstrom likely paid and what it could charge got squeezed. That matches exactly what we see in the financials from FY2020 through FY2024.

Then the dynamic shifted.

Input prices came off their peak. The output price index held steady and has actually been rising. The spread widened again, and that is what shows up in the FY2025 margins.

The way FY2025 reads to me is this: Revenue has fallen from $5.25 million in FY2022 to $4.2 million in FY2025. But gross margins have improved significantly. Inventory is down from over $3 million in 2019 to $1.18 million today. It looks like Angstrom is selling less volume but at higher unit prices, with input costs that have not kept pace with what they can charge. That is what the output index implies, and it is what the margins show.

The open question is whether the current near-60% margin is close to Angstrom’s normal, or whether it is a coincidence that it happens to land near the 2018 level. Older reports would have helped answer that.

It is also interesting to see how the index prices have performed since the end of FY2025.

FY2026 started in November 2025. Since then, the Basic Organic Chemicals index has continued to decline, from 285.4 to 281.4. And the Synthetic Dye and Pigment Manufacturing index has risen sharply, from 186.7 to 212.8. That is another 14% move in the output direction.

So the spread has widened further. If the pattern holds, margins may have improved again in FY2026.

The honest caveat is that I am working with public indices as proxies. I do not have visibility into Angstrom’s actual contract prices or what they pay their suppliers. And the company tells us nothing.

But the pattern is consistent. And the valuation leaves room for a lot to go wrong.

Speaking of valuation:

Valuation

Let’s keep this simple.

The stock has a negative enterprise value. Cash exceeds market cap by over $700K.

You are being paid to own the operating business.

And that operating business trades at 7.7x earnings, on a company that has just returned to profitability and where the underlying economics suggest that profitability is likely to continue.

Why It’s Cheap

A few things conspired to keep this stock invisible.

The company went dark and stopped reporting entirely. And even when it came back in 2022, most investors are not paying attention to anything labeled “Caveat Emptor” on the OTC markets.

Then it reported four straight years of accounting losses.

And the business is genuinely boring and doesn’t get any analyst coverage.

The Thesis

Angstrom Technologies is a small, profitable specialty chemicals business that the investment community has entirely overlooked.

The stock trades at a significant discount to its cash alone, with the operating business essentially being priced at zero or negative value.

After five years of compressed margins, the company has returned to what looks like structural profitability, and is buying back shares.

And if gross margins stay in the 55-60% range, which the recent price index data supports, the business generates meaningful earnings even on flat revenue.

Additionally, advertising spending nearly doubled in FY2025 ($97K vs $43K the year before). The buyback program is also accelerating. Every share retired at 50 cents on the dollar of NCAV creates value for shareholders.

If profitability stabilizes or grows even modestly, earnings per share will compound quickly.

And if the market ever recognizes this for what it is, a debt-free business trading below its cash balance with growing profits, the re-rating could be significant.

The Bear Case

Revenue has been declining. It peaked at $5.83 million in FY2019 and came in at $4.20 million in FY2025. If the top line keeps shrinking, the margin recovery will not be enough to save earnings.

Three customers represent 65% of revenue. One vendor represents 82% of all purchases. If any of those relationships change, the impact is immediate and large.

FY2025 margins might not hold. If raw material costs rise again, margins could creep back down. We will not know until the next annual report.

The stock is also illiquid. Trading volume is thin. Spreads can be wide. And getting in or out may not be easy.

Lastly, the CEO owns less than 1% of the company. That limits the alignment somewhat.

Speaking of ownership:

Ownership Structure

The company filed a Management Certification with OTC Markets in January 2026. Here is what we know about insider ownership:

The Chairwoman, Cristine Koock, is by far the largest insider holder with 7.9 million shares, or 22% of the ~35 million shares outstanding. This gives her substantial influence over corporate decisions and aligns her interest significantly with that of public shareholders.

The CEO, Joseph Hettinger, holds only 275,000 shares (~0.8%), which is comparatively low.

Four of eight board members hold zero shares. Combined with the CEO’s low ownership, this suggests the board is not heavily equity-aligned overall, with the exception of the Chairwoman.

That’s worth keeping in mind. I would rather see more skin in the game at the top.

Final Thoughts

Let me try to summarize what we actually have here.

A specialty chemicals manufacturer with a 55–60% gross margin profile, zero debt, and $2.74 million in cash. Trading at a market cap of $2.03 million.

The balance sheet is what makes this stand out. Full stop.

Management is buying back shares. Slowly, but consistently, and at an accelerating pace. At these prices, that is about as rational a use of cash as you can find.

The past four years looked terrible on paper. But they were the result of price movements that squeezed Angstrom’s margins. Those same price movements are now running in Angstrom’s favor.

That margin story is also the most uncertain part of this thesis. I would have liked more to work with here. Some management commentary, or some older reports. Neither exists.

The theory I built around the price indices is what makes the most sense to me given the data available. But I cannot say with certainty that it is right.

What I can say is that the balance sheet situation makes this idea extremely attractive regardless. It provides a real margin of safety. And frankly, if the information had been easier to find, the opportunity probably would not exist in the first place.

I am reasonably confident in the thesis. But reasonably confident is not the same as certain. So I would not suggest making this a large position in any portfolio.

If anyone has access to older reports on this company or any additional information and wants to share it, feel free to reach out via X.

Disclaimer: The information provided in this newsletter is intended for informational and educational purposes only. It does not constitute financial, investment, legal, or tax advice. All analyses, opinions, and interpretations reflect my personal views at the time of publication and are provided without reference to the individual circumstances or objectives of any reader. All analyses, information, and opinions have been prepared with great care. Nevertheless, no guarantee can be given as to the accuracy, completeness, or timeliness of the information provided. Use of the content is at the user’s own risk. Investing in securities involves risk, including the possible loss of capital. Readers should conduct their own research and, if necessary, consult a qualified professional before making investment decisions.

• 4x earnings

• Aligned Management

• Debt-free

Have you ever heard of the OTC-X exchange?

Well, I hadn’t.

At least not until recently.

It’s a tiny Swiss OTC exchange for unlisted securities, run by a regional bank called BEKB.

When I first came across it, I started clicking through some of the stocks listed there.

And I quickly noticed something.

I had no idea who any of these companies were. Not one name rang a bell.

None of them showed up in any screener I’d ever used.

That, of course, sparked my interest.

So I went through all of them.

As with most exchanges, the majority of what’s listed is stuff you wouldn’t want to touch. Money-losing operations, shrinking businesses, absurd valuations.

But a couple were interesting.

One in particular.

The stock I am writing about today.

Luftseilbahn Grindelwald-Pfingstegg AG.

A small tourism company in the Swiss Alps. It runs a cable car, an alpine coaster, and a fly-line on a mountain above the village of Grindelwald.

Visitors take the cable car up. They ride the coaster down. They fly through the forest on the fly-line. They pay for each ride.

What makes it interesting is not the business model, but what happened over the past six years.

Revenue nearly tripled. Margins expanded dramatically. The bank loan got paid off in full. A new CEO took over. They reinstated a dividend. And the stock still trades at 4x earnings.

That kind of setup is something you only find at an exchange nobody else is looking at.

There’s a catch, though.

The opportunity that comes with obscurity has a price.

This stock is really illiquid.

Shares almost never trade.

Only two shares have changed hands so far this year. Six in all of 2025.

It’s also genuinely difficult to buy. Easier if you’re in Europe, but I honestly don’t know how you’d get it done from the US.

With that out of the way, let’s take a closer look.

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Luftseilbahn Grindelwald-Pfingstegg AG

ISIN: CH0002052782 | Market Cap: ~CHF 4.7M | Website

Pfingsteggbahn was founded in 1967 and sits at the base of the Mettenberg in Grindelwald, one of Switzerland’s most visited mountain villages. The broader Jungfrau Region draws millions of tourists every year.

The company runs three attractions.

The cable car is the core product. It’s a pendulum-style aerial tramway that carries visitors from Grindelwald at 1,027 meters up to the Pfingstegg station at 1,387 meters. The ride covers 360 meters of elevation in about three minutes. Capacity is 450 people per hour. It accounts for 65% of revenue.

The alpine coaster opened in 1999. It’s a 725-meter stainless steel slide that winds down the mountain at speeds up to 37 km/h. The company markets this as its unique selling point. It generates about 21% of revenue.

The fly-line opened in October 2019. It’s a rail-guided ride through the forest with an automatic return system that brings riders back to the start. The company says it’s the only fly-line in the world with this feature. It now contributes about 14% of revenue.

The remaining 2% or so comes from freight transport, special cable car dinners, events, and other small items.

This is a pure summer business.

The attractions run from May to October, with somewhere between 156 and 170 operating days a year. The rest of the year is maintenance and preparation.

That also means revenue is almost entirely dependent on summer weather. The years 2018, 2019, 2022, 2023, and 2024, all benefited from above-average conditions.

The Revenue Story

Here’s where it gets interesting.

(All figures in CHF)

Revenue grew from CHF 1.43 million in 2018 to CHF 4.14 million in 2024. That’s nearly a tripling, at a compound annual growth rate of ~19%.

If you start from 2020, the numbers look even more impressive. Revenue went from CHF 907k to CHF 4.1 million. A 4.6x increase.

But context matters.

COVID hit this business hard. Switzerland banned leisure facilities in spring 2020. The cable car ran only 128 days instead of 170. International tourists largely disappeared, and revenue dropped 47% in a single year.

2021 wasn’t much better. Restrictions were still in place, the season was still shortened, and international visitors were still mostly gone. Revenue recovered somewhat but remained 26% below the 2019 record.

Then things broke loose.

2022 was the first fully normal post-COVID season. Revenue nearly doubled year-over-year to CHF 2.5 million, blowing past the 2019 record of CHF 1.7 million by 46%.

But this wasn’t just a bounce-back.

Three things happened at once.

First, the fly-line had its first full seasons. It had barely opened in 2019, running just 16 days in October, and was hobbled by COVID in 2020 and 2021. By 2022 it was running at full capacity, contributing CHF 358k.

Second, a new CEO took over in early 2023. Remo Spieler replaced the long-time manager Roger Bischoff. Spieler came from a tourism and marketing background. Under his leadership, the company raised prices, intensified marketing, and pushed for higher visitor volumes.

Third, the broader shift toward outdoor recreation and domestic tourism in Switzerland, paired with excellent summer weather, lifted the entire Jungfrau Region.

The combination of higher prices and more visitors created disproportionate revenue growth. Revenue climbed to CHF 3.1 million in 2023 and CHF 4.1 million in 2024. Each year a new all-time record.

The visitor numbers tell the same story:

Cable car passengers have doubled since the pre-COVID peak. Coaster rides are up 69%. The fly-line has grown from nothing to over 63,000 rides per year.

Worth noting too is how the fly-line changed the revenue mix.

In 2018, the cable car accounted for 76% of total revenue. By 2024 that share had fallen to 65%, with the coaster and fly-line together making up 36%. That diversification makes the business more resilient to any single disruption.

Margins

The margin expansion might be the most interesting part of this story.

EBITDA margins went from 35% in 2018 to 57% in 2024. Net margins more than tripled, from 8.4% to 26.5%.

The driver is operating leverage.

The cost structure here is mostly fixed. The cable car runs whether there are 50 passengers or 500. The coaster needs a staff member regardless of how many riders show up. Insurance, maintenance, and rent don’t move much with volume.

So when revenue doubles, costs don’t.

Staff costs as a share of revenue fell from 35% in 2018 to 22% in 2024. And that happened even as the company hired more people and total payroll grew from CHF 502k to CHF 927k in absolute terms.

The result is that earnings grow faster than revenue. From 2019 to 2024, revenue grew 143%. Net income grew 720%.

One more thing worth understanding. The reported net income is actually understated, and intentionally so.

Every year, the company books a charge of CHF 300,000 to 500,000 for what they call renewal provisions. These are voluntary allocations to a reserve fund for future capital investments in the cable car infrastructure.

They show up as an expense, but they are not a cash cost. The money stays in the business. It’s essentially management saying, “Let’s set aside cash for the next big renovation now, so we don’t have to borrow when the time comes.”

In 2024, the charge was CHF 500,000. Without it, pre-tax income would have been CHF 2.0 million instead of CHF 1.5 million.

I’ll come back to this in the next section.

Balance Sheet

The balance sheet has changed dramatically since 2020.

Here’s the simplified version:

Start with the debt, because there isn’t any.

In 2020, with COVID raging, Pfingsteggbahn took out a CHF 1 million bank loan from BEKB. That was the only long-term debt the company has ever carried in recent history. They paid it back steadily over four years and retired the last of it in 2024. The company is now completely debt-free.

Then there’s the cash. Cash and short-term investments together come to CHF 3.25 million. The entire market cap is CHF 4.68 million. So you’re paying CHF 4.68 million for a business where CHF 3.25 million of that is just sitting in liquid assets.

Now, the provisions. This is the part that takes a little explaining. The largest liability on the balance sheet is CHF 1.5 million in renewal provisions and CHF 376k in regulatory provisions.

These are not obligations to outside creditors. They are internally created reserves. The renewal provision is money management voluntarily set aside to fund future capital expenditures.

The regulatory provision is required under Swiss transport law, which mandates that operators maintain the physical integrity of their infrastructure over time.

The question is: are these liabilities or a form of hidden equity?

I’d argue the latter. They don’t represent money owed to anyone. They represent retained earnings that management has earmarked for future use.

If this company shut down tomorrow, that money would go to shareholders.

That said, I treat them both ways in the valuation section. Once as debt-like, and once as quasi-equity.

Valuation

Let’s put some numbers to it.

Enterprise value depends on how you treat the provisions.

Treat them as liabilities and the EV is CHF 3.14 million. Treat them as quasi-equity, and the EV drops to CHF 1.27 million.

The multiples look like this.

So the stock trades at a 4.3x P/E, and an EV/EBIT between 0.6x and 1.6x, with 69% of the market cap covered by cash and investments.

The company is also paying its first dividend since 2019. The board proposed CHF 70 per share plus a CHF 35 bonus dividend for a total of CHF 105. That’s a 6.5% yield at today’s price.

The dividend was suspended during COVID. After that, the cash went toward paying down debt and building reserves. Only now, with the balance sheet clean and the provisions funded, did management restart the payout. That’s exactly the right order of priorities.

So why is this so cheap?

Three reasons.

First, it trades on OTC-X. The exchange is tiny and almost completely unknown. With only 2,900 shares outstanding and essentially no daily volume, most investors will never come across it.

Second, there is no coverage. Nobody writes about this stock. It doesn’t show up in any screener, and the annual report is published in German only.

Third, the share price itself is a barrier. At CHF 1,615 per share, you need CHF 16,150 just to buy ten shares. That puts off smaller investors. And anyone who does buy in knows the position will be illiquid no matter what.

Put it all together and you have a stock that almost no one can find, almost no one can easily buy, and almost no one has written about. That’s why it’s cheap.

Management

Good businesses run by bad managers are rarely good investments.

For this reason, I want to highlight what the management team has done, especially since the CEO change in early 2023.

They paid off all debt. The company went from leveraged to debt-free in four years.

They raised prices. Combined with higher visitor volumes, that created a double tailwind for revenue.

They invested in the core business with a CHF 1.59 million cable car renovation in 2024/25, funded entirely from cash flow. They also installed a photovoltaic system on the valley station roof.

They kept building reserves.

They restarted the dividend. (Only after the balance sheet was clean. Not before.)

And they grew marketing spend from CHF 34k in 2021 to CHF 78k in 2024.

To me, that’s a picture of aligned management. People who understand shareholder value and are focused on growing the business the right way.

Risks

Beyond the obscurity of the listing, there are a few real risks worth mentioning.

The business is heavily weather-dependent. This is a summer-only, outdoor business. A bad summer can materially impact earnings. In 2021, there were only 56 days of good weather versus 88 in 2023.

The second is concentration. There is only a single location. Everything happens on one mountain. A natural disaster, like a landslide, avalanche, or an infrastructure failure, could shut the operation for an extended period.

And then there’s the illiquidity, which I’ve already mentioned but is worth repeating here as a genuine risk. With 2,900 shares and almost no trading volume, you cannot exit this position quickly. If something goes wrong, operationally or otherwise, you are largely stuck.

Final Thoughts

This is a straightforward business.

A cable car, a coaster, and a fly-line on a mountain in the Swiss Alps.

Revenue has nearly tripled since the pre-COVID peak. The fly-line added a third pillar to the business. A new CEO came in and raised prices, grew volumes, and doubled marketing spend. EBITDA margins expanded from 35% to 57%.

The balance sheet is clean, with no debt, and CHF 3.3 million in cash and investments against a CHF 4.7 million market cap. Provisions that look like liabilities but function more like retained earnings.

And the stock trades at 4x earnings.

The cash and investments alone cover nearly 70% of the market cap, and the company is paying a 6.5% dividend for the first time in five years.

The main risk is that this is a tiny, illiquid stock on an obscure Swiss exchange. You can’t build a large position easily. And if something goes wrong, like a bad summer, or a natural disaster, there’s no way to exit quickly.

But at this price, you don’t need things to go perfectly. Even if earnings fell back to 2022 levels, the stock would still be cheap relative to what’s sitting on the balance sheet.

This combination of revenue growth, margin expansion, debt payoff, capital returns, aligned management, and a cheap valuation is exactly the kind of thing you can find when you look where others don’t.

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Side Note:

Two other names from OTC-X caught my attention while going through the exchange. Neither is as compelling as Pfingsteggbahn, but both are worth a mention.

The first is SWS Medien. A tiny printing business with a market cap of CHF 2.1 million.

Revenue is declining and the business is barely profitable. What makes it interesting is the net cash position of CHF 5.5 million against a CHF 2.1 million market cap.

The second is Rigi Bahnen AG. This one is a little bigger and has a market cap of CHF 48 million.

It operates mountain railways on Mount Rigi and has been around for about 150 years.

Revenue and earnings have grown strongly over the past couple of years. There’s some debt on the balance sheet, but it trades at 7x earnings and slightly below book value.

Disclaimer: The information provided in this newsletter is intended for informational and educational purposes only. It does not constitute financial, investment, legal, or tax advice. All analyses, opinions, and interpretations reflect my personal views at the time of publication and are provided without reference to the individual circumstances or objectives of any reader. All analyses, information, and opinions have been prepared with great care. Nevertheless, no guarantee can be given as to the accuracy, completeness, or timeliness of the information provided. Use of the content is at the user’s own risk. Investing in securities involves risk, including the possible loss of capital. Readers should conduct their own research and, if necessary, consult a qualified professional before making investment decisions.

• 8x earnings

• Aligned Management

• Aggressive Buybacks

• Debt-free

Buffett is a huge fan of buybacks.

He once said there is no better use of capital than for an outstanding business to repurchase its own shares below intrinsic value.

The logic isn’t complicated.

Every share you retire makes the remaining ones worth a little more.

And if the stock is genuinely cheap, those buybacks become even more powerful.

The problem is that most management teams don’t think this way.

Think about it. How many times have you watched a company sit on a pile of cash while the stock is trading below what the business is worth?

And you’re just waiting for them to do something useful with the capital.

Buy back shares.

Pay a dividend.

Anything.

Instead, you get a press release announcing some mediocre acquisition at 10x EBITDA, funded with the cash that should have been yours. And the CEO calls it a “strategic milestone.”

It’s simply hard to find a business where management is truly aligned with shareholders.

So when you find one, it’s worth paying attention.

Today’s company is a good example.

The business has been profitable for 20+ years, has paid a dividend the entire time, and runs on almost no capital.

When the stock got cheap, management noticed and acted. They stopped the dividend and put every dollar toward buying back shares instead.

In just over a year, they’ve already reduced the share count by 16%.

But that’s not all. Management also paid off essentially all outstanding debt, removing interest expense and improving margins.

They terminated an expensive related-party contract that had been costing nearly half a million dollars a year, cut board compensation, and streamlined operations.

And after all of that, the stock still trades at just 8x earnings and 4.9x EV/EBITDA.

Let’s dig in.

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• 5.8x earnings

• 3.4x EV/FCF

• No long-term debt

• 56% of its market cap in cash

I am not a complicated investor.

Over the years I have settled on a pretty simple formula.

Find a business that has been doing the same thing for 30 years or more.

Make sure it is founder led.

Make sure there is little or no debt.

A strong cash position helps.

And the price has to make sense, as in the kind of price that makes you look twice and think: is this real?

That’s pretty much the whole thing.

I don’t necessarily need a hot sector. I just need a boring business that has been quietly compounding for decades, run by someone with skin in the game, selling for a price that leaves room for error.

Today’s business fits that description about as well as anything I have come across in a while.

Earnings per share have grown at 16% annually over the past decade.

Carries no long-term debt and holds roughly 60% of its market cap in cash.

Has been around for decades and the founder is still running the show.

It provides a service the world cannot really do without.

And the whole thing trades at 5.8x earnings and 3.4x EV/FCF.

Exactly the kind of simple setup I like to find.

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That’s where you’ll find most inefficiencies.

Smaller stocks are simply more likely to be mispriced. Both to the upside and the downside. Mainly because fewer eyes are watching them.

Large institutions can’t buy them. Not because they don’t want to. But because they can’t.

In 2024, the average actively managed American equity mutual fund had $2.5 billion in assets under management. (p. 88)

Managing that kind of money creates real constraints. Fund managers can’t own hundreds of tiny positions. Most hold fewer than 100 stocks, with an average position size of $25 million.

Fund rules typically restrict ownership to less than 10% of a company’s voting shares. So a $25 million position means you’re buying companies with market caps of $250 million or larger.

Given the knowledge and skill of many professional money managers (and I mean that seriously), true mispricings are almost never found above that threshold. Except perhaps during periods of broad panic.

Here’s the thing, though.

Individual investors don’t have that problem.

You can put $50,000 into a $30 million company and nobody bats an eye. The edge is right there.

So why don’t more people use it?

Joel Greenblatt nailed part of the answer in You Can Be a Stock Market Genius:

“If you spend your energies looking for and analyzing situations not closely followed by other informed investors, your chance of finding bargains greatly increases.”

Most people just don’t want to do the work. And the ones who might, often talk themselves out of it for social reasons.

Think about it.

Telling someone at a dinner party that you own shares in an $18 million manufacturer nobody’s ever heard of doesn’t exactly generate excitement.

Talking about Nvidia does.

There’s comfort in owning what everyone else owns. It feels safe. Defensible.

But the crowd doesn’t hand you bargains. The crowd is where you pay full price.

Now, I like to look where the crowd isn’t.

I like to spend my evenings scrolling through obscure listings, OTC tickers, and the smallest names my screeners can find.

It’s not glamorous. But you find things.

Some companies I discard immediately. Others I look at more closely. A few land on my watchlist. And occasionally, one turns into a full write-up.

Over time, I’ve built up quite a collection of tiny, cheap, and ignored businesses.

Many of them were just a little too small, too illiquid, or too inconsistent in their reporting to deserve a standalone article. But that doesn’t make them uninteresting.

I went back through that list recently and pulled out the ten names I find most compelling right now, businesses I’ve never written about before.

Among them, you’ll find four trading below 5x earnings, five below NCAV, heavy buybacks, strong book value growth, balance sheet cleanups, and immense cash positions.

Let’s take a look.

RJD Green, Inc.

RJD Green is about as small as it gets. We’re talking a $2.2M market cap, 4.3x LTM earnings, and 0.56x book value.

The company operates as a holding company with three parts: a specialty construction unit, a healthcare software division, and an environmental segment.

The core business is Silex Holdings, which manufactures and installs countertops, cabinets, and related products for residential and commercial construction markets. It runs fabrication and distribution out of Oklahoma and serves builders, contractors, and remodelers.

It’s an unusual setup, but the business itself is real and growing. Revenue reached $6.86M in fiscal 2025, up from $5.72M the year before.

Net income came in at $480k, which was lower than the $894k earned the prior year, but earnings here tend to move around depending on project timing. The profitability track record over recent years is consistent.

It’s cheap on earnings, but the balance sheet makes it even more interesting.

Shareholders’ equity has grown at a 39% CAGR over the past four years. The company holds $1.3M in cash, carries little debt, and trades below NCAV plus investments.

Now, the risks.

Construction is cyclical by nature, large contracts can distort reported results, and management has historically gone after acquisitions, which brings a whole other set of things to think about. The share count is also quite large, which isn’t ideal, and disclosure quality is limited.

But at the end of the day, this is a profitable operating business trading at deep asset value with meaningful cash relative to its size.

Seko S.A.

Seko is a Polish food producer.

Marinated fish, ready meals, salads, smoked seafood, more than 200 product variations distributed through retail chains, private-label programs, and export markets.

Not the most glamorous business in the world, but that’s kind of the point.

At a $19M market cap, the stock trades at 7.5x earnings and 0.74x book value. Add in consistent profitability, a long operating history, and no share dilution whatsoever, and you’ve got something that’s hard to dismiss.

Fish processing isn’t exciting. But it produces repeat demand, and Seko has built a product range flexible enough to serve both branded and private-label customers.

Recent financials show steady performance. Revenue has grown at roughly 5.3% annually over the past decade and was up year over year through the first nine months of 2025.

The balance sheet is solid too. Equity is growing, long-term debt is declining, and financial investments that support operations add to net income.

The business is family-influenced, with a clear long-term orientation. In late 2025, Tomasz Kustra was appointed CEO, continuing leadership continuity within the founding family.

Honestly, there isn’t much to complain about here. The growth won’t blow anyone away, but it doesn’t need to at this valuation.

My only real hesitation is a personal one. Poland just isn’t where I tend to focus my research. Plenty of smart investors do, and I understand why.

A durable consumer staples business with consistent profitability, a clean balance sheet, and a cheap price tag is a perfectly reasonable thing to own.

Bonal International, Inc.

Bonal International is exactly the kind of business I’m usually looking for. Cheap, tiny, and easy to overlook.

I really like it. The only real knock against it is simply that it’s very small.

The company sells and rents equipment that uses sub-harmonic vibration to relieve residual stress in metal parts.

Here’s the idea: when you form or weld a metal part, internal stress builds up inside the material. The traditional fix is heat treatment, where you essentially bake the stress out. Bonal’s equipment does the same thing with controlled vibration instead. I had never heard of this before I looked it up.

Bonal also sells related services like training, consulting, and stress relief work, and markets three product lines: Meta-Lax Stress Relief, Pulse Puddle Arc Welding, and Black Magic.

The business is small but real. Fiscal 2025 revenue came in at $1.74M, gross profit at $1.33M, and net income at $143k, which is the best result the company has posted in four years.

Gross margins are high, profitability has been consistent, and the balance sheet looks clean for something this size.

Cash stands at $1.06M against total liabilities of just $313k, mostly current items and lease obligations, with no long-term debt.

The stock trades at 76% of NCAV.

There are a couple of things worth watching. Four customers accounted for roughly 75% of receivables at year end. That’s a real concentration risk. And the financials are reviewed, not audited. That’s not unusual for a microcap like this, but it’s something to keep in mind before sizing up.

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• 46% discount to adjusted NCAV

• Hidden asset value

• Single-digit P/E

• 0.3x book value

Let me start with a confession.

Today’s business is a boring one.

It doesn’t build AI models. It doesn’t promise exponential growth. And it doesn’t dominate headlines.

But it does produce something I like far more: steady cash flow.

The business has been around since 1934. It has lived through war, recessions, bubbles, and financial crises. Yet it has remained consistently profitable and has not reported an operating loss since 1999.

But it’s not only resilient. It’s also dirt cheap.

The stock trades at a single-digit P/E and 0.3x book value. There is more than 80% upside just to get to NCAV plus investment securities alone.

Ironically, those investment securities are one reason the company is overlooked.

Most screeners do not include them, which makes it look like the company has net debt. But if you only look at cash and debt, you miss a large portion of liquid assets sitting on the balance sheet.

And even when investors notice the investments, it is not immediately obvious what they are. Without opening the annual report, they could be mistaken for low-yield government bonds. In reality, many are stakes in well-known, high-quality companies.

Put all of that together, and you get a business that gets overlooked, has been around for a long time, will probably be around for a lot longer, and that you can buy for pennies on the dollar.

Let’s take a closer look.

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He spent his time turning over rocks, looking for bargain-priced stocks, and sharing his ideas on his blog and on Value Investors Club.

One of those ideas was a small government IT distributor called GTSI.

Compared to the positions he would later take in his career, this was a relatively small trade.

Still, it offers a lot to learn.

It shows how he thought about entering a position, what he saw in the business, and why he ultimately decided to exit.

The investment turned out to be quite successful, generating an IRR of 143.7%. But the return isn’t the main point.

The process is.

So let’s rewind to March 28, 2001.

The day a 29-year-old Michael Burry shared this idea on Value Investors Club.

GTSI Corp.

He opened his write-up like this:

„A debt-free net-net stock, now showing earnings growth and consistency for the first time.“

Which already hinted at why the stock caught his attention.

GTSI was a technology distributor focused almost entirely on government customers. It supplied computers, software, and networking equipment to the U.S. military, the IRS, and other federal agencies.

In other words, it was a classic B2G business. The company was based in Chantilly, Virginia, just outside Washington, D.C.

It was a low-margin business by nature.

GTSI competed for large contracts against much bigger players, including firms like IBM. What allowed it to survive, and eventually thrive, were long-standing relationships inside the government procurement system.

In addition, GTSI was one of the first firms to move into e-commerce. In the early 1990s, the company launched GTSI Online (gtsi.com), an electronic catalog and ordering system. Through this platform, government agencies could search products, place orders, and process purchases electronically using EDI systems.

Their website looked like this:

Four years before Burry wrote about the company, new management had taken over and started turning around what had previously been a money-losing operation. They improved working capital discipline and inventory turnover.

As a result, the business slowly became more efficient.

International Directory of Company Histories, Vol. 57 (2004), p. 172

By the time Burry was looking at the stock, the turnaround was clearly visible in the numbers.

GTSI had been profitable for the third consecutive year, gross margins were starting to improve, revenue had grown from $486 million to $678 million in just four years, and retained earnings were compounding quickly, doubling in the prior year alone.

In fact, the company earned as much money in that year as it had in its entire previous history combined.

In addition, the company was buying back shares. Executives were purchasing stock in the open market. Even employees were buying small amounts on their own.

Outside of his VIC write-up, Burry also discussed GTSI in his MSN articles. There, he described it as:

“one of the cheapest stocks in my universe, with the best story.”

Let’s look at the numbers to see why.

The Numbers

Since this isn’t a case study from the 1960s, there’s no need to dig through old Moody’s manuals to find the numbers.

The annual and quarterly reports are still available online through the SEC.

Below is a simplified version of the financials Burry was looking at when he analyzed the stock.

I don’t know the exact share price at the moment he wrote the VIC post. In his MSN articles, Burry mentioned placing buy orders at $4.88. In the VIC write-up, he referred to the stock trading around $5. Maybe he rounded. It’s unclear.

To keep things simple, let’s use $5.

At the time, GTSI had 8,130,481 shares outstanding. At $5 per share, that put the company’s market cap at $40.65 million.

Just like Burry pointed out, the numbers leading into 2001 were clearly improving, with net earnings reaching an all-time high of $10.6 million.

That means the stock was trading at just 3.83x earnings.

Even if you adjust for the tax benefit and look at a more “honest” earnings number, the P/E was still only around 4.5.

Combine that with capable management, a business that was improving, no meaningful debt, and active share buybacks, and you pretty much have a dream setup.

At this point, you might ask: how does an opportunity like this even exist?

Honestly, I would have wanted to buy it too.

Burry addressed exactly that in the comments to his VIC write-up.

He wrote:

“The stock is cheap because it is illiquid and no one is paying attention.”

That sentence says almost everything.

It shows that these kinds of opportunities existed for the same reason they existed in Buffett’s time, why they still exist today, and why they probably always will.

Some corners of the market are simply ignored. They get forgotten and overlooked. And that’s where inefficiencies form.

A quick side note on the “net-net” label

At the beginning of his VIC write-up, Burry referred to GTSI as a net-net. But if you look at the balance sheet at the time, total net current asset value was about $31.5 million:

Compared to a market cap of ~$40 million, GTSI was not actually trading below NCAV. It did trade below book value, but that alone doesn’t make a stock a net-net.

So why did Burry call it one?

Well, he explained this later in the comments.

Before the write-up, the stock had been highly volatile. It often traded down to 2/3 of NCAV, then rallied back toward full NCAV.

Even though the stock was obscure, some value investors were aware of it. Each time it dipped deep below NCAV, they bought it in classic Graham fashion and sold once it reached what they considered fair value, hence creating a kind of trading range in the stock.

Apparently, Burry himself was one of the investors profiting from this behavior. As he wrote:

„The trading strategy with this stock has always been to buy just under 3 and wait for a spike - there have been a few - and sell it.“

In the VIC comments, he explained that this was why he still thought of GTSI as a net-net. Even though it no longer qualified as one at the time of his write-up, he kept using the label out of habit.

The Trade

I almost have to split this trade into two parts.

Thanks to Burry’s MSN articles, I have clear data on his buying and selling activity during 2001.

But, and this is an important but, in his VIC write-up, he mentioned that he had already been buying the stock a year earlier, in 2000, at prices around $3.

„It would not be surprising if pre-tax income starts to approximate the share price myself and others paid back in the $3 range last year. (…). I’m still accumulating the stock.“

Unfortunately, there is no precise data on those earlier purchases. I could guess when he bought and how much, but that wouldn’t be honest. So I’ll focus on the part of the trade where we have clear, documented evidence: 2001.

Burry placed his first order on March 9, 2001. It was a limit order to buy 1,400 shares at $4.75.

“March 9, 2001
Buy 1,400 shares of GTSI Corp. at 4 3/4 limit, good until cancelled.”

Based on what followed, it’s reasonable to assume that this order was either not filled at all or only partially filled.

A few days later, on March 16, Burry wrote: “Let’s adjust a few unexecuted trades,” and changed the order.

“March 16, 2001
Change the outstanding limit order on GTSI Corp. to buy 1,500 at 4 7/8 limit, good until canceled.”

Then, on March 29, he added another order:

“March 29, 2001
Place order to buy 500 shares of GTSI Corp. at 4 7/8 limit, good until canceled.”

If we assume that the first limit order was not filled, Burry ended up buying 2,000 shares at $4.88.

That puts the total position size at $9,760.

The stock moved quickly after that. Within just a few months, it was trading above $6.

And on June 29, 2001, Burry placed a sell order for his entire position at $6.25.

“June 29, 2001
Sell all shares of GTSI at 6.25 limit, good until cancelled.”

My guess is that Burry initially planned to hold the stock longer.

In his MSN articles, he wrote:

“I believe the stock is worth at least 8 and probably more.”

At $6.25, the stock hadn’t even reached his estimate of fair value.

So why did he sell so early?

Here is how he explained it:

“My job is to take advantage of market inefficiency. (…) These quirks in the market can be used to great advantage, especially by individual investors.”

“The reason I’m willing to sell into such spikes, if they occur, is that spikes are spikes. What goes up on a temporary imbalance comes down when the imbalance resolves.”

At $6.25, the total profit on the 2001 portion of the trade was about $2,740.

It may not sound like much at first, but you have to put it into perspective.

That’s a 28.1% return in a little over three months.

On an annualized basis, that works out to 143.7%.

And that only reflects the 2001 purchases. The true absolute return was likely much higher, given that Burry had already been buying shares in the $3 range a year earlier.

Interestingly, the stock continued to rise after his exit and eventually moved well past his estimate of fair value.

Revenue and operating income kept improving, and the share price followed.

GTSI reached a high of $14.89 in the fourth quarter of 2002.

I wasn’t able to find a price chart going back that far. But I reconstructed a rough price range using the highs and lows disclosed in the annual and quarterly reports.

The chart isn’t perfectly precise, but it’s good enough to give a sense of how the stock behaved after Burry’s purchase.

Learnings

The one thing Burry was always looking for was value.

Uncovered, overlooked, mispriced value.

He didn’t need a specific catalyst. If a stock was cheap enough, value itself became the catalyst.

That’s exactly what played out here. He bought the stock at a valuation that was low enough and waited for the market to correct its own inefficiency. In this case, that correction came sooner rather than later.

Even though this was a relatively small trade for him, with a total position size of just about $10,000 (if we only look at the 2001 purchases), it still says a lot about his qualities as a stock picker and how deep his understanding of valuation and market behavior really was.

In hindsight, it feels like a subtle preview of what was still to come.

Just like in my last write-up on Burry’s strategy, I want to end this one with his own words:

I hope you enjoyed it.

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Disclaimer: This content is provided for informational and educational purposes only and does not constitute financial, investment, legal, or tax advice. I am not a registered investment advisor or broker. Nothing written here should be relied upon to make investment decisions. Always conduct your own research and consult with a qualified financial advisor before investing. I may or may not hold positions in the securities discussed, and that may change without notice. Any mention of a company, security, or strategy should not be interpreted as a recommendation to buy, sell, or hold. Investing in securities involves substantial risk, including the risk of total loss. Past performance does not guarantee future results. While I make reasonable efforts to ensure the accuracy of information, I cannot guarantee that the content is complete, accurate, or up to date. I accept no liability for any loss or damage arising from reliance on this content.

• 2.4x EV/FCF

• Asset-light business model

• 80% of market cap in cash

• No debt

• High margins

• Consistently profitable since 2010

Anytime you’re offered a stock at 2x EV/FCF, with nearly the entire market cap in cash, you have to ask yourself:

How did I get so lucky?

You see, for some companies, such a valuation might actually be fair.

It could make sense for a shrinking business with poor management that constantly dilutes shareholders.

Or for a busted biotech that raised a lot of cash and is now burning through it day by day.

But for a profitable, high-margin, and even growing business?

That kind of valuation is absurdly cheap.

But the valuation alone is not the whole story.

The business itself has several additional features worth highlighting.

It operates with an extremely asset-light model and requires virtually no capex, meaning that almost all net income converts directly into free cash flow.

Margins are already strong, yet they continue to expand as the business grows, resulting in EBIT compounding at an impressive 24% CAGR over the past four years.

On top of that, the balance sheet is loaded with cash and completely free of debt, providing a substantial margin of safety to an already attractive opportunity.

When you combine all of this with aligned management that returns cash to shareholders, grows the business, and isn’t diluting shareholders, things start to get very interesting.

So let’s take a closer look.

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It is run by capable management.

It generates positive cash flow.

It returns cash to shareholders.

And it even owns hidden assets.

All of that at a low valuation.

What more could you ask for?

Today’s stock is exactly that.

It is a family-run business that has been around for decades. It is resilient, boring in a good way, and has been operationally profitable since 2002.

Over the past decade, earnings per share have grown at close to a 20% CAGR.

And yet, the stock still trades at a large discount to peers, at just 7x earnings and 4.6x EV/EBITDA.

After demand surged a few years ago, management invested in a new production facility. That facility is now fully operational, and free cash flow is as strong as ever.

With an already elevated cash position, increasing shareholder returns appear to be the logical next step.

On top of that, the hidden assets provide downside protection and add another layer of margin of safety to an already cheap stock.

So, in typical fashion, let’s walk through the analysis.

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• 20% FCF Yield

• 5x EV/EBIT

• Aggressive Share Buybacks

• No Debt

Warren Buffett once said:

“I try to invest in businesses that are so wonderful that an idiot can run them.”

I’ve always liked that idea.

But do you know what I like even more?

A wonderful business at a wonderful price.

And that’s exactly what today’s stock is.

It is not exciting. It is not fast growing. And it will never dominate headlines. Instead, it quietly prints cash, year after year.

It consistently produces free cash flow, earns high returns on capital, and has used that cash to aggressively buy back its own shares.

Since 1999, the company has reduced its share count by more than 80%, including 34% since 2022 alone.

Earnings per share have grown at a 10-year CAGR of 15%.

And yet, despite all of this, the stock still trades at an extremely attractive valuation of 5x EV/EBIT and a free cash flow yield of 20%.

Let’s take a closer look.

Colefax Group PLC

Ticker: CFX  Market cap: £49.3m

Colefax Group is a London-based designer and distributor of luxury furnishing fabrics, wallpapers, and interior design services. The company operates at the very top end of the market and sells primarily to interior designers and specialist retailers across more than 50 countries.

What makes Colefax unusual is not growth at any cost, but consistency. For decades, the business has maintained stable margins, generated steady cash flow, and used that cash to aggressively buy back its own shares. Since 1999 alone, the share count has been reduced by more than 80%.

The roots of Colefax go back to the early 1930s.

The business was founded in 1933 by Lady Sibyl Colefax, a British socialite who turned her natural talent for interior decoration into a profession after losing much of her wealth in the Wall Street Crash of 1929.

She began by decorating homes for friends within her social circle, quickly building a reputation among the UK’s wealthiest families.

In 1938, she partnered with John Fowler, who would later become one of the most influential English interior designers of the 20th century, and the firm became known as Sibyl Colefax & Fowler.

In 1948, the company was acquired by Nancy Lancaster, another well-connected figure who played a central role in shaping Colefax’s identity. Lancaster helped popularize what later became known as the “English Country House” or “English Style”.

Under her ownership, the firm expanded its reach beyond the UK, particularly into the United States, and further cemented its status at the very top of the interior design world.

During the 1960s and 1970s, Colefax entered its first phase of structured growth. The decorating teams expanded, and management began to look for ways to diversify the business beyond bespoke interior projects. This led to the launch of branded fabric and wallpaper collections.

In 1973, Colefax opened its first retail shop selling off-the-shelf fabrics, followed by a wallpaper collection in 1982. This marked an important shift. The company was no longer just a decorating firm for a small elite but had begun to turn its design expertise into scalable products.

A major turning point came in 1986, when David Green bought an initial stake in the business and took over leadership.

Green, who is still CEO today, initially pursued growth through acquisitions.

Throughout the late 1980s and 1990s, Colefax acquired several premium fabric and wallpaper brands, including Cowtan and Tout, Larsen, Jane Churchill, and Manuel Canovas, building a portfolio of five distinct luxury brands alongside the original Colefax & Fowler.

Within a decade, the group had completed five acquisitions and became publicly listed, first on the main market of the London Stock Exchange and later on AIM.

By the late 1990s, however, Green made a decisive shift in strategy. Having completed the acquisition phase by 1998, he concluded that further deals offered diminishing returns.

Instead of paying high prices for external brands, he redirected the company toward organic growth and capital returns. From that point on, excess cash was increasingly used to buy back Colefax’s own shares.

Today, Colefax is one of the two or three largest players in the true luxury fabric and wallpaper segment. While its global market share is only around 5%, its position in core markets is much stronger.

In the UK premium segment, Colefax holds well over 15% share, with a similar presence in the US. In both countries, the top five players typically account for 30% to 50% of sales, with the remainder spread across many small, often family-run firms.

Publicly listed peers are rare. Sanderson Design Group in the UK and Embellence Group in Sweden are the closest comparables. Successful new entrants at the very high end of the market have been extremely rare over the past 20 years.

The business today is split into two divisions.

The smaller one is the Decorating Division, operating under the historic name Sibyl Colefax & John Fowler. This is the original interior design business and accounts for roughly 10 to 15% of group revenue, primarily in the UK.

It undertakes a limited number of high-value projects for private clients. Revenues and profits are lumpy, depending on the timing of project completions. EBIT margins are modest, around 5%, and the division is not a meaningful growth driver, though it remains important for brand heritage.

The core of Colefax is the Product Division. It generates close to 90% of group sales and achieves higher EBIT margins of 8% to 12%. The division focuses on the design and distribution of luxury furnishing fabrics and wallpapers across five brands: Colefax & Fowler, Cowtan & Tout, Jane Churchill, Larsen, and Manuel Canovas.

Each brand has its own design language and price point, serving different segments of the luxury market. This portfolio structure provides a degree of diversification.

The Product Division also includes Kingcome Sofas, a small UK-based luxury sofa business that represents around 3% of group revenue. Sofas are made on a made-to-order basis and are funded by customer deposits.

Apart from this, Colefax does not manufacture its products. Fabrics and wallpapers are sourced from more than 120 specialist suppliers across the UK, Europe, and India.

This asset-light model keeps capital needs low and has contributed to stable gross margins over many years.

Geographically, the US is the most important market, accounting for just over half of total group revenue and ~64% of Product Division sales.

Almost every sale involves an interior designer, and Colefax works with roughly 30,000 designers worldwide.

Pricing power is strong, and cost inflation has historically been passed on quickly.

Income Statement

One of the most striking features of Colefax’s income statement is its long-term consistency.

Since the late 1990s, gross margins have remained within a remarkably narrow range, typically between 53% and 57%. Operating margins have fluctuated more, moving between 3% and 12%.

Revenue growth has been modest but persistent. Since 1998, group revenues have grown at an average growth rate of ~ 3% per year. Over the past decade, growth has been somewhat stronger, with revenues increasing from £77 million to £110 million, providing an average annual growth rate of about 4%.

In FY2022, Colefax benefited from an unusually favorable post-pandemic environment. Lockdowns and travel restrictions led to a surge in housing transactions and home-related spending, particularly at the high end of the market.

As a result, group revenues increased by 30.7% in a single year. Importantly, rather than giving back those gains, Colefax managed to hold on to the higher revenue base and even grow sales modestly in the years that followed.

I like that FY2022 was not just a one-off spike, but a step-change in the scale of the business.

Additionally, Colefax has not posted a loss-making year for at least the past 25 years.

The business is not immune to economic cycles, and earnings do dip from time to time, but they have never turned negative.

This resilience is closely tied to the nature of its customer base. By catering primarily to high-net-worth clients and operating at the very top end of the market, Colefax is less exposed to short-term swings in discretionary spending.

While revenue growth has been steady rather than spectacular, shareholder returns have been meaningfully enhanced by capital allocation.

Since 1999, Colefax has returned £62.7 million to shareholders through buybacks and reduced the share count by more than 80%, from 28.5 million shares to just over 5.2 million today.

Following the post-COVID recovery, Colefax resumed aggressive share buybacks and reinstated a small dividend. Since 2022 alone, the company has reduced its share count by 2,476,585 shares, representing 34.0% of the shares outstanding at the start of the period. This includes two large tender offers, most recently completed in October 2025.

Dividends remain small relative to buybacks. In FY2025 the company spent £2.4 million on share repurchases and only £0.355 million on dividends, returning a total of 5.9p per share.

This underscores how strongly management favours buybacks at current prices and signals that they view the stock as undervalued.

The impact on per-share results has been substantial. While net income grew from £3.46 million in 2016 to £6.51 million in 2025, a compound annual growth rate of approximately 7.3%, earnings per share increased from £0.32 to £1.08 over the same period.

This translates into an EPS CAGR of 14.5%, more than double the growth rate of total profits.

This also explains the long-term share price chart.

Since the end of the acquisition phase in 1998, Colefax has effectively been a share cannibal. As a result, over the past 20 years, the stock has become a ten-bagger, despite never being a high-growth business.

Finally, the growing importance of the US market deserves attention. Colefax now generates roughly half of its group revenue in the US, and US revenues have grown at a compound rate of 7.5% since 2020.

This is meaningfully higher than the group’s long-term average revenue growth. If this trend continues, the increasing weight of the US business could gradually lift the company’s overall growth rate over time, even without any change to the underlying business model.

Balance Sheet

Colefax’s balance sheet is strong for a business of its size.

The company operates with no traditional debt and holds a significant cash balance of £22.3 million, despite years of aggressive share buybacks and regular capital returns. This provides a wide margin of safety and a high degree of financial flexibility.

The business model requires a relatively large inventory balance, with finished goods representing the largest component of working capital.

Beyond that, the main area that deserves closer attention is leases.

Colefax operates a global network of trade showrooms, particularly in the US and Europe. These showrooms are essential for serving interior designers and maintaining brand presence at the high end of the market.

Under IFRS 16, these leases are capitalized on the balance sheet as right-of-use assets with corresponding lease liabilities. As a result, Colefax reports lease liabilities of £22 million, including £5.1 million classified as current.

At first glance, this can make the balance sheet look more leveraged than it really is. Economically, these lease obligations are not debt in the traditional sense. They are recurring operating costs, equivalent to rent paid for showrooms that are critical to running the business.

Treating them as financial debt risks overstating leverage and double-counting costs when valuing the company.

This accounting treatment also distorts the cash flow statement.

Under IFRS 16, lease payments are split between depreciation and interest, while the actual cash payments are recorded under financing activities.

As a result, reported operating cash flow is inflated and no longer reflects the true cash generated by the business after paying for premises.

Management explicitly acknowledges this and states that operating cash flow is no longer a meaningful performance measure on its own.

Instead, it focuses on operating cash flow less lease payments.

This adjusted figure provides a much clearer picture of underlying cash generation.

In the most recent year, operating cash flow less lease payments amounted to £10.8 million, while lease payments themselves were around £5.7 million. These lease costs are recurring and unavoidable, but they are comfortably covered by operating cash flow.

Looking at capital expenditure, reported capex has been somewhat elevated in recent years due to a handful of non-recurring investments. In the most recent year, capital expenditure was £2.07 million, compared with £2.99 million the year before. Over the past decade, average capex has been £2.68 million per year.

However, recurring maintenance capex is meaningfully lower. On an ongoing basis, around £1.7 million per year is required, primarily for new product development within the Fabric Division.

Using a conservative approach and deducting the long-term average capex of £2.7 million from operating cash flow less leases, Colefax generates around £8.1 million in adjusted free cash flow.

Using a more realistic maintenance capex assumption, adjusted free cash flow is closer to £9.0 million.

Either way, the business produces substantial, repeatable cash flows relative to its size, which explains both its strong net cash position and the company’s ability to consistently return capital to shareholders.

Valuation

Colefax is not a business that requires aggressive assumptions to look attractive.

Even on a standard, unadjusted basis, the stock already trades at a valuation that implies very modest expectations.

Using a conventional approach that treats IFRS-16 lease liabilities as debt, Colefax currently trades at 5.6x EV/EBIT.

On a cash flow basis, the picture looks similar. Based on adjusted free cash flow of £8.1m to £9.0m, the stock offers a 16.4% to 18.2% free cash flow yield. That is already low for a business with stable margins, no financial leverage, and a long record of capital returns.

That said, the leases make valuation slightly more complicated.

The present value of future lease payments is capitalized on the balance sheet and treated like debt. Economically, however, these leases are operating costs. They are no different from rent and are required to generate revenue.

For this reason, it is useful to look at an adjusted valuation that treats leases as operating expenses rather than financing.

Currently Colefax has net cash of £22.3m. With a current market capitalisation of £49.3m, this implies an adjusted enterprise value of £27m.

For FY25, the company reported EBIT of £9.6m, which already includes all operating costs, including showroom rents and other lease expenses.

Using this adjusted EV, Colefax trades at just 2.8x EV/EBIT.

Even if we take a more cautious view and normalise EBIT to £7.5–8.0m, to reflect a softer near-term environment or tariff-related noise in the US, the multiple only rises to around 3.4–3.6x.

The same picture emerges when looking at cash flow. Using adjusted free cash flow of approximately £9m against an adjusted enterprise value of £27m results in a free cash flow yield of roughly 33%.

It is also worth highlighting the contrast with peers.

Sanderson Design Group, Colefax’s closest UK peer, trades at 16.5x EV/EBIT, despite weaker margins and a more challenged end market.

Embellence Group in Sweden trades at 10.9x EV/EBIT.

Both operate in similar industries, yet neither matches Colefax’s balance sheet strength or long-term share buyback record.

In that context, I find the current valuation extremely attractive for a durable, asset-light, and shareholder-focused share cannibal like Colefax.

Risks

Colefax is not without risks. The two most relevant ones are exposure to international trade policy, particularly tariffs, and the question of management succession.

(1) Tariff and Trade Risks

Colefax sources a large share of its fabrics and wallpapers from Europe and sells a significant portion of its products into the United States. This makes the group exposed to changes in international trade policy.

A look at history provides some useful context. Following Brexit, new import duties into the EU reduced the Product Division’s profitability by more than £1m.

While this was a meaningful headwind, Colefax was able to absorb these costs over time. Gross margins remained resilient, and the business continued to generate strong cash flows.

This suggests that, at least partially, higher costs can be passed on to customers without materially damaging demand.

That said, the risk remains. Any new tariffs on goods imported into the US could increase the landed cost of Colefax’s products.

At the same time, there are mitigating factors. Colefax operates at the very high end of the market, where purchasing decisions are driven more by brand, design, and reputation than by small price differences.

(2) Aging Management and Succession Risk

The second major risk relates to management and succession. Colefax is led by an experienced but aging leadership team, most notably CEO David Green, who is now 79 years old.

David has been instrumental in shaping the company’s strategy over the past decades, particularly the shift away from acquisitions toward aggressive share buybacks and disciplined capital allocation.

This creates a key-person risk. A change in leadership could lead to a change in strategic direction, especially regarding capital returns and growth priorities.

One potential successor is Tim Green, David’s son, who has been with Colefax for several years in a senior commercial role and was recently appointed to the board. Prior to joining Colefax, Tim was CEO of Tangent Communications Plc, which was successfully taken private by private equity.

Tim currently owns around 4% of Colefax, with an additional 2% held by his children.

There are several possible outcomes.

David could eventually sell the business, likely at a materially higher valuation than today.

Alternatively, he could step aside and hand over control to a successor. In that case, strategy becomes the key question. A new CEO could continue the current buyback-focused approach, or pivot back toward acquisitions and growth initiatives, which would introduce a different set of risks.

The fact that Tim previously sold his own company is noteworthy and leaves open the possibility that, if he becomes successor, he might pursue a similar path at Colefax.

Final Thoughts

Colefax has made good use of an unusually strong FY22. Instead of chasing growth or stretching the balance sheet, the company consolidated its higher revenue base, invested in the business, and returned excess cash to shareholders through dividends and share buybacks.

Once leasing costs are treated as what they truly are, operating expenses, Colefax emerges as a steady producer of free cash flow. This is true even in a more challenging environment marked by political uncertainty around trade.

The business is not immune to these pressures, but its positioning at the very high end of the market provides a strong degree of resilience.

There are risks, particularly around tariffs and long-term succession.

Still, at the current valuation, there appears to be a meaningful margin of safety for investors with a long-term horizon.

Colefax is unlikely to become a ten-bagger from here. But as a durable, cash-generative, and shareholder-focused business, it has the potential to be a quiet, steady, and deliberately boring compounder in any portfolio.

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