Undervalued Microcap Buying Back Shares
Debt-free, aligned management, and trading at 8x earnings.
Key Metrics:
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.