Trading at 7x Estimated Earnings Post-Restructuring
Clear Q3 catalyst as earnings power will become visible in the numbers
My favorite setups are characterized by three components:
We have a clear reason why the stock is cheap without being contrarian. The current earnings power is simply not yet reflected in the numbers. However, at the same time, we can underwrite our expected earnings power with relatively high certainty.
There is a clear catalyst or timeline for when our predicted earnings power should appear in the GAAP numbers.
Beyond this first clear catalyst, which is almost “special situation-like”, the business itself is capable of earning high ROIC.
I believe this setup resembles exactly that: post-restructuring, this business is trading at roughly 7x earnings by my estimates. Further, I believe this earnings power should be visible from Q3 this year onwards—meaning there’s a very timely catalyst.
Looking beyond that, there is reason to believe this company can generate high returns over a longer period. In an industry where bigger peers trade at 3-4x EV/Revenue, this company trades at 0.7x EV/Revenue, also making it a potential acquisition target for competitors.
However, there are one big caveat; the stock is extremely illiquid, current average daily trading volume is roughly $6,000.