A Munger "sick business fix up" situation
Near-term catalysts set to rocket earnings and free cash flow
“I've had many friends in the sick business fix up game over a long lifetime. And they practically all use the following formula, I call it the cancer surgery formula:
They look at this mess. And they figure out if there's anything sound left that can live on its own if they cut away everything else. And if they find anything sound, they just cut away everything else.”
Charlie Munger, The Art of Stockpicking
This company is one of the most clear-cut applications of the above strategy I have ever seen. The base business (while “boring”) generates a ton of free cash flow and is highly profitable.
This profitability has been buried for years by prior management that was hell-bent on entering into a horrifically competitive industry against scaled, highly efficient and dominant firms.
This mis-adventure incinerated over $1 billion in shareholder capital and resulted in significant operating losses. Needless to say, the stock price horrendously underperformed all relevant indexes during this period.
Fortunately, prior management and the full board of directors have been replaced.
With Munger’s “cancer removal” strategy as the core playbook, I believe this stock is approaching a major profitability inflection point that (in my opinion) will send the stock up at +100% over the next 12-18 months.