Investment Opportunity 1 – Liquidation Value Six Times the Market Cap
Sometimes when you buy an asset, whether it be a car or a piece of equipment, the value of it is what you could liquidate it for. The asset does not necessarily need to create cash flow. For example, if you go to Home Depot to buy an electrical saw, you don’t look at how much cash flow it can generate for you before you buy it.
Many times, on Wall Street, an asset needs to generate a certain amount of cash flow in order to support its valuation, unless of course, we are talking about Facebook, Twitter, or GoPro. These can trade at whatever valuations someone can dream of.
Company 1 owns an equipment fleet that it rents out to contractors during various construction projects. Because the company is incapable of satisfying investors with enough cash flow, the company’s market cap is way below its liquidation value. In other words, if the actual equipment were to be liquidated today, the shareholders would receive about 6 times more money than what the company is trading for.
Investment Opportunity 2 – Now It Looks Really Interesting
This is a new idea for Ultimate Value Finder. However, I looked at this company sometime in 2013. I studied it but decided to pass because things were just so awful that I could not make myself write about it. Fast forward to today and the company finally looks interesting.
First, the price is 70 percent cheaper which is always a good start. Second, certain segments of the company are growing while the legacy segment is declining. And third, a brand new business was launched under the company’s umbrella, and this business could become big.
Investment Opportunity 3 – Transitioning from Development to Growth
Everything in life goes through different stages: development, growth, maturity, and decline. This also applies to companies. However, investors are not interested in all the stages because they are all about making quick money. Development is not something that they want to be a part of because it requires patience, hard work, and capital. Maturity is boring, unless, of course, they are private investors getting all the cash flow. Decline is not even in their vocabulary, so let me skip that.
They want growth because growth is the heroin that keeps them up all night. Company 3 is leaving the development stage and entering the growth stage. This means that you have an opportunity to acquire shares when revenues are tiny and hold them until they grow, generating the excitement. Also, you have a lot of exhausted investors willing to sell shares after years and years of disappointment, dilution, and lack of payday.
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