This global services company has fallen out of favor as investors worry about its uninspiring revenue and EBITDA growth, as well as its history of overpaying for otherwise strategically smart acquisitions. Its large net debt balance and ability to sustain its dividend also weighs on investors.
We think the company’s improvement plan under its new CEO, its solid and improving EBITDA and large cash hoard, along with its low valuation, offers investors the potential for significant upside.
With apologies to Madame de Pompadour after her king’s setback in the Battle of Rossbach in 1757, the unfortunate turn of more recent events in the stock market could be creating at least a modest flood of opportunity for contrarian investors. This may be particularly true as we approach the year's end, when artificial selling pressure, created by investors tossing their losers, offers some unusual short-term bargains. Here at The Turnaround Letter, even we can be tempted (briefly!) to set aside our intense focus on long-term business fundamentals and underlying valuations when shorter-term bargains appear.
An old adage says that when the United States sneezes, the rest of the world catches a cold. Recently, though, as the United States slows modestly after an extended period of Olympian-quality health, emerging market stocks seem to have caught something more like pneumonia. Since its January peak, the widely-watched iShares MSCI Emerging Markets ETF (EEM) has declined 22% while the S&P500 has weakened by about 8%. Over longer periods, the EEM remains unchanged since 2007 while the S&P500 has nearly doubled. Investors haven’t given these markets much credit for a long time.
Amazon joined Apple in reaching a $1 trillion market capitalization. $1 trillion is about the same as the total value of New York City property and the total value of loans at JP Morgan, the nation’s largest bank in terms of assets. Jeff Bezos’ $160 billion stake would place him (personally) as the #33 largest company in the S&P 500 in terms of market cap, next to Coca-Cola, Disney and Netflix. We aren’t bold enough to predict whether the shares will continue upwards or if they are in a bubble reaching maximum inflation. Setting aside for a moment their investment prospects, let’s admire the truly remarkable milestone that these two companies have reached.
EV/EBITDA: What Is It & Why Are We Using It More?
In reading recent editions of The Turnaround Letter, you have probably noticed that we are increasingly using EV/EBITDA as a valuation measure, rather than the better-known price/earnings multiple. We thought it might be useful to describe this measure and why we like it.
This Forbeswrite-up follows up on the recent Top Stock Tips report--naming The Turnaround Letter's Crocs recommendation the top performer of 2017: With 90% gains, CROX beat out 100 other investment ideas included in the report; and the stock continues to have value investing appeal, according to Putnam.
George notes, "We see additional upside for the stock in 2018 as management's efforts continue to bear fruit, though the gains will likely be more muted than we saw in 2017."