0.37x Book Value. 7x Earnings. 2x Free Cash Flow.
A cash-generating business trading far below its assets
Key Metrics:
7x earnings
0.37x book value
~2x free cash flow
Management owns ~40%
Every once in a while, you come across a stock that looks almost absurdly cheap. Trading at a fraction of book value. Single-digit earnings. And no obvious explanation.
Your first instinct is to assume something must be wrong. And often, that’s true.
But sometimes, especially with small companies, you will find the opposite. That there is nothing fundamentally wrong at all.
The market simply isn’t paying attention.
These situations usually have a history. In many cases, there was a good reason for the stock to sell off in the past. Like a past crisis, or a bad year.
That’s true here as well. The last major crisis hit this business hard and left a deep scar on the share price. But what you often see in situations like this is that while the business fully recovers, the valuation does not.
That dynamic describes today’s stock almost perfectly. After being sold off during the last crisis, the business not only survived, it thrived. It has completely recovered and is doing even better than before. The stock, however, never fully followed.
The company is simply too small and too unknown for most investors to notice.
It is a manufacturer and supplier of small but critical parts for a major industry. The business has been around for over 100 years and is durable enough to be around for 100 more.
It produces a lot of cash and trades at roughly 2x free cash flow.
Management clearly cares about the business and has been making smart capital allocation decisions. They have focused on strengthening the balance sheet, paying down debt, and steadily growing shareholder equity.
At the same time, the stock trades at just 0.37x book value. There is meaningful downside protection through tangible assets, and on top of that, there are hidden assets that increase the margin of safety even further.
It’s a typical old-school Buffett setup. A cash-generating, asset-rich business, trading well below fair value, run by owners who are aligned with shareholders. Management owns roughly 40% of the company, while the free float is still large enough for outside investors to build meaningful positions.
Let’s dig in.