Cheap and Uncovered
7x earnings, sub 5x EV/EBIT
Key metrics:
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.