Hidden Debt and Accounting

Investors usually scan the liabilities section of the balance sheet for labels such as debt, notes payable and loans to gauge a company’s leverage. For retailers, many also consider operating lease liabilities, which appear on the balance sheet but are usually excluded from debt figures. However, there is another debt-like obligation that rarely carries any of these labels: the supplier finance program, also called reverse factoring or supply chain finance. If used aggressively, it can make a company look less leveraged and more cash-generative than it really is.

Watkin Jones (WJG)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price

- Warren Buffett (source)

I think this idea travels well to the UK homebuilding sector, which has been going through a rough stretch that's left most homebuilders trading at depressed valuations. One example is Watkin Jones (WJG). At the height of the 2022 bull market, the stock traded as high as £ 268p. It recently changed hands at £ 18.4p — well below its tangible book value of roughly £ 44.4p per share.

Investment Process: Management and Board - Part III

This post is the third in a series, following Management and Board – Part I and Management and Board – Part II. As a reminder, the objective is to highlight a few underappreciated governance features that I have found particularly useful when evaluating management teams and boards—and determining whether they are the right long-term stewards of shareholder capital. These should be interpreted as indicators rather than definitive conclusions.

The Hidden Leverage in Insurance: A Dual-Engine ROE Machine

What if the most powerful form of leverage requires no debt at all? Consider the case of an insurance company which usually has two businesses operating in parallel - an insurance operation (underwriting, reserving, and claims management) and an investment operation (deploying premiums into financial assets). While running both efficiently is widely discussed, far less attention is paid to the underlying leverage mechanics embedded in each -- leverage that, when working in concert, can dramatically boost returns on equity.

IG Design Group (IGR): A Boring Business at a Bargain Price

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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I prefer investing in great compounders bought cheaply. But that opportunity doesn't always present itself. More often, it's basic, boring businesses that offer the best value -- and patience is what separates those who capture it from those who don't. IG Design Group (IGR) seems one such situation.

Investment Process: 9 Investing Thoughts

In this post, I share the key principles I try to consistently apply in my investment process.

Investment Process: Management and Board - Part II

This post is the second in a series following Management and Board – Part I. As a reminder, my objective is to highlight a few underappreciated governance features that I have found particularly useful when evaluating management teams and boards—and deciding whether they are truly worthy partners for deploying hard-earned capital. These should be viewed as signals, not definitive conclusions.

Investment Process: Management and Board - Part I

This topic has been widely explored, and much has already been written about it. Rather than revisiting familiar arguments, my aim is to highlight a handful of underappreciated governance features that I have found particularly useful when evaluating management teams and boards—and deciding whether they are truly worthy partners for deploying hard-earned capital.

Alliance Aviation Services (ASX:AQZ)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Price is what you pay, Value is what you get - Warren Buffett

It is not very common that a company becomes cheap on both asset value and earning power value at the same time. Alliance Aviation could be one such case.

Hurco Companies (HURC)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Value with better odds of success can take various forms — and Hurco Companies may be one such example.

Webco Industries (WEBC)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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At first glance, Webco Industries looks like a classic value setup. The stock trades at just 56% of tangible book value, has a consistent history of generating operating income, carries low debt, has significant insider ownership, and is repurchasing shares. On the surface, these are all attractive traits for a value investor. However, despite these positives, Webco does not align with my investment philosophy.

Crest Nicholson (CRST)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Apart from Beazer Homes in the U.S. homebuilding industry, I also find value in select U.K. homebuilders that appear temporarily out of favor. One such company is Crest Nicholson, which the market seems to be mispricing.

Helix Energy Solutions (HLX)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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I am looking for businesses trading at a discount to intrinsic value where management is actively working to close that gap. Helix Energy Solutions seems to fit this framework. The company operates specialized vessels that provide offshore oil producers with services such as production enhancement, well decommissioning, support for offshore renewable projects, and related activities. At current levels, the stock embeds a meaningful margin of safety.

Manhattan Bridge Capital (LOAN)

 Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Manhattan Bridge Capital provides short-term loans for residential construction and renovation. Its operating model is designed to keep risk low while delivering steady returns on both existing and new capital. 

MasterCraft Boat Holdings (MCFT)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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Once again, I am drawn to a company in a disliked and overlooked industry—a branded boat manufacturing business operating within an oligopolistic market with strong business economics.

Beazer Homes (BZH)

Disclaimer: The views expressed here are mine and may change without notice. Past performance is not indicative of future results. All investments carry risk, including financial loss. This analysis is for educational purposes only and does not constitute investment advice or recommendations of any kind. Conduct your own research and seek professional advice before investing. Please see important disclaimers here and here.

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One area of bargain hunting I focus on is out-of-favor industries. Right now, homebuilders fall into that category due to widespread concerns about housing affordability. In this post, I highlight one such company where I believe the current market price likely understates the business's value to a private owner.

Note on Stock Writeups

Investment Process: Surface Numbers Can Deceive

In this post, I want to highlight how simple yet important aspects of investment analysis are often overlooked— leading to flawed decisions.  Let’s walk through two common examples.

The Buyback Bottleneck

Share repurchases have become so routine that when companies don’t buy back "enough" stock, the investment community often reacts with disappointment. While there are valid (and sometimes concerning) fundamental reasons for holding off, in this post, I want to highlight some non-fundamental factors that might explain a slower-than-expected buyback pace.

Investment Process: Your Edge.

The word "edge" might initially suggest something exclusive or inaccessible. On the contrary, I think an investment manager's edge could be very specific to him or her. Knowing these edges strengthens my investment process.