It can be an investor’s worst nightmare. Your seemingly well-managed and successful company is producing steadily rising revenues and profits, propelling its share price nicely up-ward. Then, you hear unnerving news implying that the company’s products are not safe. Your (and everyone else’s) first thoughts are “how bad is it going to get,” quickly followed by “sell now before it gets any worse.” In this “shoot first and ask questions later” situation, the share price plummets.
With ETFs and other passive strategies capturing more investor dollars, it is easy to forget that each index is comprised of individual stocks. And, when the media discusses the Dow Jones Industrial Average, the most widely recognized stock market indicator, it may seem that all 30 member stocks generally move together. While this may be true on any given day, over time their performances can diverge significantly.
In nearly every case, the shares of a company in bankruptcy become worthless. In very rare cases, however, they can become great investments. W.R. Grace (NYSE:GRA) shares produced a 75-fold return, as an example. With California utility PG&E (NYSE:PCG) now in bankruptcy, the range of possible outcomes for its equity is wide.
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."