Friday File: Who Deserves Patience?
by Travis Johnson, Stock Gumshoe | September 8, 2023 4:27 pm
Are some of our "requires patience" stories not really worthy of the gift of more time?
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Source URL: https://www.stockgumshoe.com/2023/09/friday-file-who-deserves-patience/
Hey Travis, thanks for the write-up but I had a couple of questions regarding BOC and PRM.
Regarding BOC, do you think there is anything concerning regarding the reported material weakness in their internal control (relating to financial reporting)? It was reported on their most recent 10-Q and caught my eye but I openly admit I don’t precisely understand all it entails.
For PRM, regardless of management compensation, do you not believe that the company’s success will fundamentally be driven by the growth of acres burned over the coming years? Not to suggest management doesn’t matter but from what I understand they are close to a monopoly. Obviously it still ends up feeling more like gambling than investing but I cannot for the life of me see that, long-term, wildfires are going to trend downward (even though we’ve had a couple of weak seasons now).
I do think Perimeter’s (PRM) results will be primarily driven by wildfire activity, these were just the straws that broke the camels back when it comes to my faith in management.
Part of the problem, structurally, is that they’ve taken a strategy which worked great in aircraft parts (load up with debt, raise prices) and applied it to a market where demand is a lot more variable. Which means things could get ugly if we have several years in a row of low-fire seasons. They’re probably OK this year, but if next year is even worse (better for California, worse for them), the debt costs and dilution could begin to bite more deeply.
It could bounce back dramatically well, too, especially if their PR blitz against their competitor works to keep their near-monopoly intact.
When it comes to Boston Omaha (BOC), I’m not currently concerned about that lack of internal controls. It relates to one of their “unconsolidated entities” that requires specialized accounting disclosures as an investment company, and they’re taking steps to fix that. I assume it related to asset management, since their larger operating businesses shouldn’t be considered investment companies, and that should make any error or impact of restatement quite small (not that they’ve found an error, just that they’ve discovered an area in which their system might not recognize an error promptly).
Could become a problem, of course, one never truly knows for sure… but doesn’t look like one to me.
Thanks for another great Friday File, Travis. Sharing your Boston Omaha sentiment. I also saw BOC as a buying opportunity this week and picked up more shares around 16.7 before reading your article. Too tempting to pass up. Nice to have your validation, too. It’s funny how this company is easier for me to buy and hold, be patient with and sleep well at night than several large cap stocks like PYPL, WDAY or MMM , which are roughly 130x larger than BOC. Stock movements don’t concern me much with this business. With BOC it appears tangible and transparent what you are getting as demonstrated by your book value calculation. Managements is trustworthy and has skin in the game. This may become one of these “forever” stocks, perhaps even with a dividend in 10 years or so, when the investments pay off and cash flows grow to become more positive. In a few years, I could see them become an operator of electric vehicle charging stations at Walmarts, strip malls , small towns or converted gas stations. For that, however, they would need to raise capital under more favorable conditions than presently. Lofty idea, I know. What else could fit this promising conglomerate?
We’ll see… they seem to have their hands full with their broadband ambitions right now.
Does rural broadband have a profitable future – satellite internet is dramatically dropping in price, it’s now almost the same price as cable, and speeds are rapidly increasing. Just debating how this space looks in a decade or so.
My friends who live in rural areas have been switching to satellite.
That is a good and viable question. These rural cable providers used to be local monopolies. Not so much with Fixed Wireless and other satellite spectrum on the way.
That is the one major worry for me about the fiber rollout… though BOC makes a pretty good case for satellite being the worst and most expensive way to provide broadband, especially when the user base grows, and the feds are so far not including the satellite offerings in their broadband programs.
We’ll see. Laying fiber in new housing developments is a no-brainer great business… extending it in rural areas can be expensive and shift the equation a bit, but when fiber can be offered at a similar price ($100/mo or so), it’s irresistibly better than satellite. The bet is partly that bandwidth needs will keep increasing and high speeds will become more important.
Fixed Wireless is offering around $45/month with 200 – 300 speeds. That is enough for most and a good price versus incumbents.
Thnaks, the other thing to consider is some of those rural areas have poor cell phone signal. Satellite plans offer increasingly attractive bundles of satellite phone + internet.
Good call on exiting MPW. Have you seen that disaster lately? REITS should be boring. This one could become a zero, no?
Sometimes when management keeps trying to tell you they’re jerks, you should believe them.
Haven’t looked at the numbers lately, but piling on debt to throw good money after bad tenants sure started the snowball rolling pretty quick.
Regarding Boston Omaha- I think there might be a math mistake.
Based on your numbers, I think value should be $552 million divided by 31.3 million shares is about $17.63 per share. Your thesis does not change with revised numbers if they are correct.
Thanks.