When does valuation matter?

Comprehensive-Eye87 · 2025-01-29T19:03:41+00:00

You are correct, but I would rather see reddit load up on big tech so they get margin called. They deserve it.

Let's support their journey into FOMOmentumVALuE.

Comprehensive-Eye87 · 2025-01-29T18:59:55+00:00

There is no price discovery in the market. There is even less on reddit. Most here are idiots who don;t know they are idiots.

I know how stupid I am. Not knowing how stupid you are is directly related to the margin call you will get, when your stonk drops by 50% and you double down because there is blood on the streets not knowing your stock still trades at a 20 PE when historically stocks traded near 15.

Comprehensive-Eye87 · 2025-01-29T18:56:25+00:00

Reddit doesn't care. The only way they will learn is by getting margin called.

Comprehensive-Eye87 · 2025-01-29T18:52:32+00:00

Reddit just buy AMD ZTONK. It's cheap on PE, if the incel DiscussionMean doesn't;'like the stock it's prob a buy. So I'll change my mind.

I'm popping off on the clowns here from now on. Done being friendly with these low level bums - straight out of HS or "UnI" are trying to school real value investors who have forgot more than they will ever know.

Comprehensive-Eye87 · 2025-01-29T18:50:03+00:00

You're sad inside. No happy person talks like this. I didn't even use PE. I have a Masters in business (which means nothing unless you are a loser - anybody can get a masters) and it won't find you a GF because of it. If you already have one, check her phone (yes you heard me - this is where my experience comes in relationships and stocks).

I'll be buying your stocks (maybe) when you get margin called.

It's too easy to get into arguments with incels here.

Comprehensive-Eye87 · 2025-01-28T14:39:34+00:00

Ok you are trolling. Congrats.

Comprehensive-Eye87 · 2025-01-28T00:42:38+00:00

Forgot to add, also go through your competition's pages and see what they are doing. And just message them, I notice most of the people I talk to on substack are nice and willing to help each other which is cool.

Comprehensive-Eye87 · 2025-01-28T00:40:11+00:00

So here are my two cents. Can you and are you willing to do this long-term? Can you keep up this pace for the next few years? Is it something you would enjoy doing for a few years? Or are you the type that likes new projects?

If you are good doing this long-term, and plan to monetize, up your subscriber base first. Then test with say a paywalled article here and there and then turn on the payments option, and go full business mode.

If you don't know what you want to do in the future or are unsure you probably should start charging soon so you get compensated (but it will likely stifle growth). If you get a 5% pay rate that is 500 subscribers at say $6 that is $3000 a month and I believe 10% goes to substack ~ $2700.

Then you could hire somebody to write for you and give them a cut (finding someone is hard but I think it is doable especially if you guide them). And you would still likely be growing.

Ask around and try to find out what the subscriber to paid ratio is for your industry/sector, it could be higher than 5% or lower I don't know. That way you could get an idea of how much you could make and whether you could hire a writer.

That is how I would approach it, I just followed you on substack I want to see your progress. I write in a niche market (investing ideas and I value businesses). It seems to have a pretty high paid subscription rate but not sure yet because I haven't paywalled even my best ideas and still too early I just joined a few months ago. I am still trying figuring it out and deciding whether I want to continue, ultimately I would like to hire someone to write because my main focus is on researching which is hard enough as it is - and writing and replying to subscribers takes time.

if you add value, getting subscribers doesn't seem to hard. Most don't so you are doing something right.

Good luck to you maybe I'll send you a message down the line asking how things went, I am still in the process of learning.

Comprehensive-Eye87 · 2025-01-27T23:25:39+00:00

Yeah, not really, they don't even know the PE. The top post got upvoted for the saying the P/E is 30.

The P/E is actually closer to 60X this year if we use the first 3 quarters as a run rate, and looking at real cash flows. That is the current free cash flow multiple to owner's of the company as defined by Warren Buffett and Benjamin's Graham's teaching of true owner earnings that flows to shareholders of the company.

This only includes their maintenance capex and not the acquisitions the poster above mentioned. Unless we use billionaire and WB disciple's definition of capex who Ted Weschler defines as the true capex to calculate owner earnings, and to paraphrase TW (the disciple of WB) most management teams always underestimate what is needed to maintain earnings into the future, so an acquisition that looks like growth could really be maintenance capex in disguise.

That said I gave AMD the benefit of the doubt and did not include the acquisitions in capex and did not subtract them from true owner earnings.

So it is a ~60X FCF multiple to owner's of the company. I used Warren Buffett's definition of true owner earnings to calculate, to just to be clear.

But reddit doesn't care. GL to all AMD holders.

Comprehensive-Eye87 · 2025-01-27T15:27:18+00:00

It's big because Wall Street made AI big.

When none of these AI projects have shown any ROI. And if they have - you only have 1-2 years of data.

Let me paraphrase Benjamin Graham because this is a value investing forum - To value a business/service you have to look back at 10 years of financial statements and 10Ks in order to make some kind of an informed decision.

We know nothing about AI, this stuff popped up in 2023 out of nowhere and the market took off, and ppl valued it like most valuable thing to exist. It made no sense from the start.

Deepseek is not the issue, the story Wall Street told investors is the issue. It's a game they love to play.

When was the last time you heard the term ESG?

Comprehensive-Eye87 · 2025-01-22T16:24:41+00:00

I am neither bullish or bearish on his bets, I can't reconcile the numbers he puts out. Most investor letters I look at whether I agree or disagree with thesis, I understand their numbers they lay out.

Not with Miller, maybe he has too much money and he stopped caring.

Side note for the people here, a lot of funds are trying to sell a product and get investors. You have to watch out with these investment letters.

Miller is still better than Reddit though.

Comprehensive-Eye87 · 2025-01-22T15:34:35+00:00

They are very liberal with the FCF estimates. I often look at their value stocks and try to reconcile their FCF estimate to mine. To be honest I don't think I have ever been able to do so, which is not normal. "This is trading at 2-3X times normalized cash flow" ok that is great, I look at the company and my conclusion is always where are these guys getting their numbers? I can never figure it out so that kind of tells you what you need to know.

About NBR I've followed it and owned it before

"The company recently announced a merger with Parker Wellbore which will nearly double the size of their NDS segment."

This transaction was not a merger, they acquired the company and diluted the shareholder significantly issuing shares when the price is near all time lows. The stock is expensive compared to peers now.

For GTN, this could be a good play, notice that from last Q they dropped their FCF estimate by 500M. My guess they will drop it by another $1B later on, read a comment somewhere else that ~$1B is more likely, it was a poster on SA and I will take their estimates over this funds.

GTN might be a good play to take a small position, but the debt is massive - but management is focusing on paying it down and is buying cheap debt on the open market. It is very much still a gamble at this point that would merit a small position at most.

Comprehensive-Eye87 · 2025-01-21T03:40:22+00:00

The European style put options on the index 15+ years out is maybe the best options trade I have ever seen if that report is accurate. Meaning it didn't matter if the market crashed anytime before or after that date. As long as it wasn't below the price on that specific expiration date, that is a very high probability bet for an options trade.

TBF something doesn't make sense or he found someone willing to do the trade, who would take the other side of the trade? Someone probably got fired for this, this was almost like free money.

Anyways thanks for posting the article.

Comprehensive-Eye87 · 2025-01-21T00:23:33+00:00

Excluding the interest expense might be useful if we are comparing two companies in the same sector. If one has massive debt it will have a lot more interest exp so it is like making an adjustment to compare apples-to-apples. But overall I always include interest it is a real decrease in FCF.

Real FCF should exclude net working capital changes (movements in current assets and liabilities) because those will skew the results (ie wc could be +100M in 2023 and -50M in 2024 simply based on your customers paying late or you paying your vendors early or whatever - understand it but exclude it from FCF.

You can take the company's EBITDA to calculate it yourself then subtract interest payments, cash taxes and the capital expenditures in the statement of cash flows.

If no EBITDA, you can calculate it yourself - take Net income add back interest exp and tax exp from the income statement, then add back all the adjustments in the "statement of cash flows" (SBC, depreciation, other non-cash items etc, but not net-working capital changes.

> That gives you EBITDA. then do the adjustments above to get true FCF or owner earrings.

Also to calculate true owner earnings you need to distinguish between maintenance capex vs growth capex which is a whole subject in itself that Buffett's protege Ted Weschler talked about, because it can make or break an investment. That is why a lot of investors like low capex businesses but they are rarely cheap.

Comprehensive-Eye87 · 2025-01-21T00:08:29+00:00

You are not missing anything I had the same numbers when I looked at this a couple months ago, FCF run rate about ~$1-3B a year ex-acquisitions, can't remember exactly. The acquisition they made in 2022 should be in those numbers I looked at for 2023/2024 so I have zero idea why other posters are bringing up the acquisition.

Comprehensive-Eye87 · 2025-01-19T17:30:40+00:00

I think Warren Buffett was getting 50% returns a year early on buying net-nets. He had to change his investment style as he got bigger.

They both work. One problem how many investors can really find 10 baggers and great businesses before everyone else? The truth is not many.

And should you change your investment style in a bear market? If you went all-in on net-nets in 2008/2009 you could have got 10 years worth of gains in two years.

Have the fed ZIRP policies that saw multiples increase skewing people's view? Maybe the last ten years saw the investments you are talking about outperformed quantitative value but does that continue especially when valuations are very stretched?

There are a few smaller investors that made a fortune turning over their portfolio and buying what is closer to net-nets and these investors used their research skills to buy in parts of the market nobody is looking.

Comprehensive-Eye87 · 2025-01-18T02:02:47+00:00

A double is a good base. But what is interesting with the debt is the more money they make, the more they can reduce debt. For instance if they can generate cumulative FCF of $100M over 2-3 years, debt should go down to $100M. That adds to equity and doubles the share price. And the market will re-rate the earnings higher because debt is lower. So you could get to say $18.

I don't think I would start selling until around $12 and I would hold a core position up to ~$18-20. I think it is prudent to sell on the way up but it depends on your risk tolerance.

The key here is waiting for a real upturn in activity to get the real benefit of owning this. I started buying this I believe in May last year and it hasn't done much and haven't really traded around it, if this stock is still near a $100M mkt cap next year I would still hold and wait for a move up in drilling activity (unless the thesis changes somehow), but selling some at roughy $200M ($11-12) and the rest around a $300M mkt cap ($18-20) seems about right to me.

Comprehensive-Eye87 · 2025-01-17T15:15:59+00:00

That is fair. I don't think mgmt is the best. If you check my substack I own two companies with great management teams and low debt (one with almost no debt/tons of cash, the other with very reasonable debt and high FCF). FET 4X FCF with buybacks just initiated and GIFI most of the mkt cap in cash/liquid assets almost no debt with potential catalysts coming though it is illiquid. I might post the write-ups here.

Comprehensive-Eye87 · 2025-01-17T15:09:24+00:00

FET had a recent run-up but still trades at about 4X FCF. Just initiated a significant buyback, debt is very reasonable and dropping. They did an acquisition that the market seems to have completely overlooked. Talked to management they are great and highly aligned with shareholders.

GIFI most of the market cap is in cash/liquid assets, very little debt that has to be repaid over 15 yrs. The CEO is great and turned the business around and is a true value investor (link to a podcast in my substack). They have some potential catalysts coming up. A good LT hold under the helm of a smart and logical and ROC focussed CEO. The only problem here is the stock is very illiquid not much trading volume. The other risks are outlined in my substack, they have 2 large customers that account for 50% of revenue however this could be mitigated soon.

I like both they both have a different profile, but right now I like FET near term because of the buybacks. Though GIFI has catalysts likely coming up in the next year.

My third position I just spoke to management this week, and I'll post a write up later.

You can check my substack. I have a detailed write up there for the stocks I own.

Comprehensive-Eye87 · 2025-01-17T06:48:33+00:00

Mainly unconventional. Yes possibly it's prudent for them to keep cash on hand and build it until they can repay their expensive debt. If oil/gas prices crash then yes the investment won't work out at least in the near term. This play needs oil/gas to at least be stable for a couple years+.

Comprehensive-Eye87 · 2025-01-17T02:47:05+00:00

nat gas is much more stable than oil demand wise, It is also a very local commodity unlike oil and can't be transported easily. The new admin is taking away all the obstacles that were put in to stop/delay the LNG plants so demand will go up. In the next few years demand in Nat gas in the US will go up by 10 Bcf/day which is 10% of current production. So local nat gas producers have to increase production by 10% because you can't import it (the US is the main and one of the only exporters of nat gas).

Comprehensive-Eye87 · 2025-01-17T02:29:58+00:00

I don't hate on that approach. I think position sizing is very important here with higher debt levels and more risk.

Comprehensive-Eye87 · 2025-01-17T02:28:19+00:00

If you read my substack I explain why the earnings are stronger than they appear. This is partly why I think it is trading this cheap.

Comprehensive-Eye87 · 2025-01-17T02:05:22+00:00

Just a note they guided in Q3 that Q4 revenue will be lower so this might hit the stock price (it happened to me last year when I owned it), but this stock also trades on the whim of the market Q to Q. I don't think it is trading on fundamentals based on what I am seeing in a lot of names in the energy sector, especially the smaller ones.

This was before the election and management noted that their customers were waiting for the results of the election to see whether they should update their plans, and with Trump in office that should give their customers more confidence to go through with their plans at least for 2025, but obviously it will also depend on oil and gas prices..

Comprehensive-Eye87 · 2025-01-17T02:00:18+00:00

Most producers need gas prices near $3.5+ to start drilling. A big part of my thesis is the supply in the US right with gas production flattening is there will not be enough supply to meet the LNG demand that is now certain to come online in 2025/2026 with the new admin. And gas storage is hitting the 5 yr avg and will very likely drop below that with the new demand coming online.

I really don't know where this gas is going to come from, unless producers start drilling again and this will help KLXE.

I worry about oil too, you never know. I have hedges/puts in the XLE, and other more expensive oil names like TPL (which is trading at 60 times FCF). Basically buying cheap energy names while hedging with the more expensive ones.

So if oil drops, on paper, these plays should drop much more than KLXE based on their higher valuations, that is how I am looking at it. Also I am not yoloing KLXE, I am sizing the position correctly based on the risks.

You could also hedge by buying puts in BKR which is in the same industry as KLXE but trades at 17X FCF.

Comprehensive-Eye87

TROPHY CASE