• Grew production 7x in 2 years, above plans

• Trades at 1.8x forward owner earnings at current spot prices

• Has owners earnings hidden by depreciation and ongoing growth

• Has an overstated Enterprise Value, due to partly owned/owed debt

• Produces one of the world’s most strategic resources…

With these properties, be sure to also get some risks and some dirt… :-)

Let’s start digging.

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Performance

The portfolio returned 10% year to date, compared to 18% for the S&P 500 expressed in Euro. We see a first negative quarter after 18 positive quarters of investing in small caps. This happened while over 20% of the portfolio was in cash, so the actual stock returns were even worse, and especially when comparing to February levels, when the portfolio was at +22% YTD at one point.

This may be the start of 18 negative quarters:

Approach and past performance

The portfolio is currently not live available to subscribers. I’m afraid that would encourage too much copy-paste trading, exposing you too directly to my mistakes.

Many subscribers have done well doing their own analysis of my write-ups though, which have performed better, up 30% on average since pitch versus 16% for the S&P 500 over the same periods.

Some of these companies have really suffered lately, as oil prices affected interest rate expectations and gold prices.

Q3 2026 market events

In the last few months, global interest rates reached levels they had not seen since the early 2000s. While this did not stop the S&P 500 from rising, many investors are seeing declines in their portfolios.

While some of the largest companies, like Nvidia, Meta, Microsoft and JPMorgan benefitted from the rally in AI and in interest rates, most stocks have declined over the past weeks, because higher oil prices and higher interest rates are expected to hurt consumers’ purchasing power, and therefore demand for most businesses.

The chart below shows S&P500 breadth declining. The orange line indicates only 20% of stocks now trade above their 50-day average:

While I can’t predict the outcome of the Hormuz war, the evolution of interest rates, or the market sentiment in the coming months and years, I do take into account:

• Be careful in this market environment. Especially construction stocks and gold-related stocks can suffer, which is why I reduced them earlier in the year, as discussed.

• Finding exceptional small caps creates an advantage over the long term. Not all of them work out, and performance fluctuates, but over the long term, a solid strategy supported by due diligence should do very well.

• Only invest with money you can afford to lose. That’s pretty obvious and it gets easier to understand in bear markets.
  

I will post some more comments on the drivers for the rise in interest rates later. There’s an interesting dynamic going on where the Iran war affects the Japanese yen, and the resulting Japanese central bank policy actions affect global interest rates, or should we say, bond prices…

For now though, let’s look at the portfolio.

Changes and Portfolio

In this section:

• Full portfolio with % allocation and change vs last month

• All portfolio moves and their rationale

Below is the portfolio as of October 2nd:

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You guys are hiding half of your earnings power… True P/E is more like 5x, and the true earnings are likely going to show up in the 2026 reports.

Let’s take this company for a ride…

Overview

Alquiber rents out 22.000 vans and other commercial vehicles to SME’s in Spain.

The company is interesting because:

1. They grow double digit revenues, take market share, deliver consistent profits…

2. They look cheap at 9x P/E on 2025 reported net income of 8 mEUR (74m mkt cap)

3. They are cheaper at 5.5x P/E, after removing consistent fleet over-depreciation

4. Their reported net income likely jumps from 8, to 14 - 16 mEUR in 2026, driven by higher revenue from rental and fleet disposals

Briefly: The company is interesting because it owns 22,000 cars, and depreciates them too fast, down to 21% of purchase value in just 5 years. This results in large gain on sales when they retire and sell the cars.

In reality, they should depreciate at least 26% slower, resulting in 50-100% higher reported earnings, and a P/E of 5.5x conservatively. The company is hiding its real earnings inside the depreciation of its cars… That’s great for taxes, but investors better pay attention…

1. Long-term growth, founder-led

Miguel Angel Acebes is a veteran of vehicle rental. In 1980, he founded Fualsa, Spain’s first flexible commercial rental company. He sold Fualsa to competitor Northgate in 2002, staying on as CEO for 3 years.

After his non-compete expired in 2009, he bought Alquiber together with his daughter. They spent the last 15 years growing the same business while competing with Northgate again in the Spanish market.

Alquiber is focused on medium-term, flexible vehicle rental, mainly of vans like Fiat Ducato. The type of van a florist or a restaurant owner would use. Flexible vehicle rental is growing quickly in Spain, as small business owners switch from owning to renting their vans, enabled by a competitive and flexible vehicle renting eco-system.

Alquiber has achieved double-digit growth in revenue and profit in recent years, driven by expanding market and increased market share.

The company’s fleet and go-to-market strategy is comparable to that of Northgate, although Alquiber tends to focus on slightly larger and more differentiated vans, including earthworks cranes and other equipment.

Alquiber is founder-led and owned, vs Northgate being owned by its corporate acquirer. It looks likely that Alquiber will continue taking market share in Spain. I don’t know exactly how they do it, but they always seem to outperform Northgate…

2. Looks cheap at 9x P/E

Alquiber recently reported record 8 mEUR in net income for 2025, and trades at an undemanding 74 mEUR market cap, or 9x 2025 net income.

Looking at the source of the profits though, we see that they can be attributed to “Gain on sale” of obsolete vehicles. Alquiber retires each vehicle at about 5-6 years old.

We could look at this chart and say: “That’s terrible earnings quality”. The business is not profitable and only makes money selling the vans at the end of their useful life…

This is a fast-growing company though, so the cars they are disposing of now, only represent a small fraction of their fleet. If the fleet was more mature, disposals would be much larger.

The gain on sale on the small group of cars disposed of, is the tip of a larger iceberg of cars in operations, which are being depreciated too quickly. Alquiber’s accounting is taking value out of each of its 22.000 cars, making earnings and book value look lower than they really are.

3. Understating earnings, depreciating too quickly

Alquiber depreciates their fleet at 18% in the first 3.75 years and 9% in the years after. According to this depreciation schedule, an Alquiber van is worth only 21% of its value after 5 years. This feels extremely low, at least according to Fintwit:

Comparing the realized market value to the gross and net book value of the cars sold, we can understand how much depreciation should have been, versus how much it was.

Twitter was right. The average car sold in 2025 (4.2 years old), was sold at 52% of its original value, indicating a 5 year old car would realize about 35-45% of its value.

Flipping this data the other way around, this means actual depreciation over the lifetime of cars sold in year x, was higher than true depreciation:

On average, Alquiber depreciates its fleet about 40-50% too quickly. One could say here, wait a second. Didn’t used car prices go up a lot during Covid? Yes, they did, but have come down since. They are up ~3% per year since 2019, nothing unusual:

A comparison vs Northgate parent ZIGUP, also shows Alquiber’s over-depreciation

• Alquiber in 2025 depreciated gross fleet value at a rate of 18%

• ZIGUP depreciated gross fleet at 13% in 2025

Again Alquiber records over 35% higher depreciation than its competitor.

I will use 35% as conservative over-depreciation number for Alquiber today

True earnings power

Three different approaches (Twitter estimate, gain on sale analysis, peer comparison) indicated that Alquiber’s depreciation is at least 35% too high.

The chart below adjusts this by calculating a 26% (x 100/135) lower depreciation value, getting the resulting book value, net income, and ROE for the company. (setting disposal gains to 0)

Alquiber had a true earnings power of 13 mEUR in 2025 (vs €8m reported), and therefore trades at about 5.5x adjusted P/E (vs 9x reported).

4. Reported net income likely to jump in 2026

Modelling Alquiber’s net income suggests reported net income might almost double in 2026, from €8m to €12-16m. This is driven by 2 factors:

1. The fleet is aging leading to slightly lower depreciation per car

2. More cars getting disposed of, leading to higher disposal gains

This is true at least in theory. In practice, management might delay disposals, depending on how demand in the rental market behaves vs. demand in the used car market.

The good thing is, if they delay disposals, this will push more cars into the 9% and eventually 0% depreciation rate, and if they don’t delay disposals, this will push higher disposal gains…

The company can only keep “hiding” its true earnings power by continuing to grow high teens %. Otherwise the fraction of more mature and disposed cars will grow compared to the newer cars.

Cohort survival math

Looking at Alquiber’s historical fleet purchases, and annual fleet sizes, I can model the survival rate of the cars in Alquiber’s fleet, as a function of the cars years in service.

I’m assuming here, that cars less that 3 years old don’t get sold off. They can only leave the fleet through accidents, at a rate of 1-3% per year:

For example, for 2025, they have 21913 cars, which is the 4615 they purchased in-year multiplied by 99% survival, plus the 3873 purchased in 2024 multiplied by ~97% survival, multiplied … etc., all the way back until 2018, assuming all the cars bought in 2017 and older are all retired…

Solving these equations for x_1 to x_4, gave a survival vector, that helps model the number of cars, and the amount in each age group, for any given year.

RMS solving gave x_1= 10%, x_2=14%, x_3=20%, x_4=83%, which just means that after 4 years, 83% of cars are still in fleet, but after 5 years, this drops to only 20%. It looks like they suggest replacement at about 4.5 years, which the customer either accepts immediately retiring the car, or doesn’t accept keeping the car active until the end of the lease term. So this leads to many cars getting taken out at 4-5 years old.

Survival and depreciation model

Using the solution for X above, I now know how long I should expect cars to remain in Alquiber’s fleet and what the variability around that is.

Based on this, I can calculate depreciation for each year, using the fleet size in each age group for each year.

Rather than working through the matrix formula’s, let me show what this looks like visually. Applying the survival rate found above to the historical purchases, I can calculate the fleet size by year, including age groups:

Red is the actual size of the fleet, and the blue blocks are the modelled fleet size, split into different age cohorts grouping cars of the same purchase year.

This model’s prediction for how many cars Alquiber has at year end (sum of the blocks), works well for most years. 2025 has a larger model error though. The rental market was doing great in 2025, driving Alquiber to retain significantly more cars, and to dispose of less cars than in 2024. This is quite unusual and leads to actual fleet size being higher than what would be expected by the model.

More important to the thesis, I can show the % cars in each age group for each year at year-end. The red line here indicates what % of cars is younger than 3.75 years, which is a threshold for reducing depreciation. As the line goes down in 2025, I could expect slightly lower depreciation in 2026.

Observations on the modelled %s shown above

• The fleet is getting slightly older. The top cohorts, especially with cars 4-5 years old is growing in importance

• Disposal rates are expected to increase in 2026, as 17% of cars are in the 4-5 years old bucket. These are modelled numbers by the way. In reality this fraction is even bigger, driven by low disposal rates in 2025.

• A key reason the fleet is aging, is 2021 purchases. The bottom block in 2021 shows they purchased a lot of vehicles through 2021 coming out of Covid, and those are now nearing their typical disposal age for Alquiber.

So What?

2026 will have ~50% higher disposals and disposal gains, because according to the model, at end of 2025 they have over 50% more cars in the 4-5 year age group.

In reality, Alquiber retired less cars in 2025, so the 2026 effect could be even larger.

Estimating 50% higher disposals than 2025, and a similar gain per car, gets:

This will likely cause 2026 net income to be 5-6 mEUR higher than 2025 net income, mainly driven by higher disposal gains, complemented by higher rental revenues and EBIT, as the business continues growing.

P/E on estimated 13-14 mEUR net income in 2026 is then 5x - 5.5x on reported earnings.

Risks

Used vehicle prices. Gains depend on used cars holding ~50% of cost after 5 years. LEZ tightening and EU 2035 phase-out could drag prices 10-15% lower. I have already incorporated 10% lower prices into the thesis by using 35% over depreciation instead of 40-50%. Still, the company is highly levered to used vehicle prices.

Spanish construction softening. ~30% of customers construction-exposed. Recession hits utilization and used prices simultaneously.

EV transition. Almost all of Alquiber’s fleet are currently ICE. It’s likely that in 5-10 years they will transition to EV. This may create different competitive dynamics or different customer preferences.

Higher interest rates, can form a headwind on earnings as the company is highly levered. The leverage is less problematic than it may seem though, as the company has highly liquid collateral in the form of over-depreciated vehicles.

Summary

Alquiber is a stable grower in the Spanish commercial vehicle market. While already cheap at 9x P/E, we argue that true earnings are understated because of excessive fleet depreciation.

We think this disconnect will temporarily reverse in 2026 mainly driven by the retirement of larger 2021 (post-covid) vehicle cohorts, driving reported earnings up to 13-14 mEUR.

At an undemanding 2026 P/E of 10-11x, Alquiber provides a potential 100% upside from todays 13.8 EUR share price.

Disclosure: Long. Please check out the company before investing.

Disclaimer: This publication’s authors are not licensed investment professionals. Nothing produced here should be construed as investment advice. Do your own research before investing.

Performance

The portfolio returned 16% year to date, compared to 6% for the S&P 500 expressed in EURO. We are working on a potential 18th consecutive positive quarter.

The portfolio is currently not live available to subscribers. I’m afraid that would encourage too much copy-paste trading, exposing you too directly to my mistakes.

Subscribers have done well doing their own analysis of my write-ups though, which actually have performed better so far this year, up 19% on average since pitch.

One new write-up will be out soon on a company which is currently in the portfolio. I have been geek-ing out on it a bit too much and should probably focus on making it a simple and crisp write up rather than a “look at all the work I did on this idea” show.

April 2026 market events

In the last month, the USA and Iran signed a peace treaty. This opens some perspectives for a re-opening of the Strait of Hormuz, although there are still several hurdles to be cleared before that happens.

Meanwhile, markets are making new all time highs. The companies in the S&P500 which have reported Q1 results so far, on average achieved 21% earnings growth, the highest quarterly increase in the last 5 years.

Artificial Intelligence is already driving companies to report higher earnings, not because of what the AI is doing, but because

• AI builders (Big tech) save on labor to allow increased AI capex spending

• AI users (Banks, Telco’s, IT developers) keep headcount low in anticipation

We’re not in an employment recession though, because the AI build-out itself is funding additional GDP growth, driven by that capex.

This puts in perspective why the S&P500 is doing well, and why it would do even better if the Strait of Hormuz were to be re-opened. In that scenario, we would likely have:

• Increased GDP growth because of AI capex

• Increased productivity because of automation & low hiring due to AI fears

• Disinflation driven by productivity and tariff effect roll off

• Fed reducing interest rates

We are talking about markets here though, and so of course, the exact opposite could also happen, with Strait of Hormuz remaining closed, and other trade routes also getting affected, sending oil even higher and creating an inflationary recession much like we had in 2022.

I think Iran and the USA are both so much better off making a deal, that they likely will make one relatively soon.

Changes and Portfolio

In this section:

• Full portfolio with % allocation and change vs last month

• All portfolio moves and their rationale

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When I finally understood the totality of their business model, and how it compounded an inherent advantage, I realized their strong financial results were not a one-off or a case of luck.

While they are growing from a much smaller base, their Quality metrics are better than companies like Microsoft and Google, showing a gigantic moat:

After reading everything about this company in the past weeks, I realized their moat is not just one element, but a mix of process power, network effects, cornered resource, and switching costs.

The company we will cover today…

• Has a moat built over generations

• Has growth and ROE % higher than Alphabet & Microsoft (with 0 cyclicality)

• Has net income compounding at 35% (organic growth + operating leverage)

• Trades at 9.5x forward earnings, with 5% dividend yield

• Is not impacted in any way by Iran war/peace

• Trades ~350 kUSD/day

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1. Narrow down for what we are looking for quantitatively

2. Remove several groups of stocks for Qualitative reasons

3. Add back amazing growth stocks even if P/E or ROE doesn’t fit yet

4. Show the 16 most interesting Polish stocks for the moment

5. Review the most interesting 10 in a preliminary 1 page pitch

Poland is a great place for investing, because it has an amazing economy, a low cost of being public (resulting in a high amount of companies) and valuations are low as international investors are only just finding their way to the country.

There’s over 700 listed companies in Poland. I include only 545 today, having removed some “blacklisted” companies like CDA and Gamivo.

Just under 300 of these are profitable. Most are small-caps:

Filtering out the more expensive ones (P/E >15), and focusing on the growth companies, 31 remain:

I then removed the cyclicals, gaming companies, too hard to understand businesses, too illiquid companies, too lumpy companies… all to check if we can find some cheap, growing easy to understand businesses in this big sea of Polish stocks…

By the way here are some “too illiquid companies” I removed:
DGA, Mostozal plock, Eco5tech, Ampli, Effect capital group, Ultimate games Hub tech, G-energy, Quantum RRH, Verbum, Talex, ATM grupa, Genomed, Examobile, Sakana, Editel, Ekipa, Kancelaria, Prawna-Inkaso, Monnari, Otmuchow, Aqua.

What remained was 13 growing, cheap, liquid companies I think are interesting to consider investing in:

While researching, I like to look at the longer term success of each of these, as a pragmatic way to avoid one-hit wonders and find something durable that will do well for a long time, but is currently undervalued.

This is why I put together a longer term Revenue and Profit chart for the ones I found most interesting here, and some comments on what I found one each of them:

This is the start of research, so as always take it with a grain of salt. I will get back with a longer pitch (as done in Feb 2025 for BSH) on any I like in particular as my research progresses.

Here’s the 11 I like, in the order of how well I know them. I didn’t include Oponeo and Mostozal Zabre here because I don’t know them well enough yet.

As my research progresses, I may buy/sell some of them. If you like any in particular or have questions, let me know in the chat/Discord.

1. Atrem

2. BSH

3. Quercus

4. LSI Software

5. Kruk

6. Madkom

7. 7Fit

8. Helio

9. Sevenet

10. Spyrosoft

11. Vindexus

The Polish indexes are up ~40% year on year and are continuing to make new highs in the middle of the Iran conflict. Looks like this was a good country to look at years ago, and I think it still remains interesting.

I hope you enjoy checking out some of these companies, and possibly thinking about whether any of these meet your personal investment profile and objectives.

Disclosure: I own some of these as disclosed.

Disclaimer: This is not investment advice. Before investing, validate the data within the companies audited reports, and speak to an advisor.

Thank you

• High quality, recurring revenue, toll bridge type business

• Double digit growth in revenue and profits for several years

• Founder-led, with the founder increasing his stake daily, right now

• Profitability hidden due to Lease accounting. Clears up in 12-18 months

• Multiple free call options (Tech, M&A call options, franchise pipeline)

• Daily ~50 kUSD liquidity (sweet spot of investable & small cap discount)

• Trades at 9x earnings, guides for strong earnings growth to continue

I like each of these properties a lot, but rarely find them all in one stock.

After passing on a truckload of companies because of the Iran situation, I was happy to buy this one given the unique situation.

Let’s work out why.

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Performance

The portfolio returned 9% year to date, compared to ~ -2% for the S&P 500 expressed in EURO. We made a 17th c…

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• OKP delivered great 2025 results (Revenue +33%, Net income +21%)

• Exposure to higher oil or other inflation looks limited to mainly ~3 mSGD/y in higher fuel costs. This is low, driven by low fuel consumption, long term input contracts and low labor inflation. Other more earthwork focused companies will suffer much more.

• OKP wants to use the large cash balance to bid for more projects and grow within Singapore’s construction boom providing a good environment until ~ 2028-2029.

• OKP currently trades at 8x earnings or 4x ex-cash. The stock is up ~200% since the write up on the company last year and is currently not in the portfolio anymore.

At the end of the interview are some thoughts on why OKP/Soilbuild/Lincotrade are likely much less affected by the oil shock than KTC and Huationg.

Interview

Attendees

• Mr. Daniel Or (Executive Director of OKP)

Thank you for taking the time to speak again, mister Or, and congratulations on another record year.

Thank you, Floe. Happy to speak with you!

Q: Let’s start with the macro. How do you see the construction market in Singapore right now?

A: The Building and Construction Authority is awarding about 50 bSGD in construction activities per year. Last year it was about 51.2 bSGD, and 2026 is going to be around the same amount. We are in a construction boom right now. Contractors have enough supply of projects in the market, so you don’t have to cut short and tender at very low prices. In terms of margins, things are looking good for our industry and this will continue for the next two to three years.

Q: OKP has done much better than other construction companies on margins. Why is that?

A: There are a few reasons. We don’t go after major and complex jobs. We never participated in the Changi Terminal 5 project, or the Changi East corridor. These major contracts have durations of seven to nine years. Once you lock in such long duration projects, you need a lot of people, and you become less flexible. (to price higher in the current boom)

Since there are enough jobs going around in the market, we should not be entering into this arena. The good thing for those major contractors is that they have clear order books for six to eight years. But since there’s enough to go around, we select shorter duration projects. So I can recycle my capital a lot faster than the others.

(Earlier interviews cover Mr. Or’s exceptional focus on project management excellence which he is very modest about but is a key advantage for OKP )

Q: With oil prices rising, are you exposed to higher input costs?

A: Because of the nature of our work, we don’t use much diesel. My consumption is about 200,000 liters per month for the whole group. Assuming it persists, the annual impact would be maybe 2-3 mSGD. Based on my turnover and my gross margins, I don’t think that is significant.

For reference, the largest earthworks contractor in Singapore, KTC (a private firm) consumes 5 million liters per month. A dollar increase costs them 5 mSGD. We are in a very different position.

For materials, concrete and reinforcement steel in my contracts have fluctuation clauses, so I’m covered. The structural steel we use has increased about $100 per ton, but the suppliers and subcontractors are still honoring their contracted rates.

For labor, cost increases are limited and focused on white collar workers, more driven by the construction boom rather than cost of living increases.

Q: What is your biggest challenge right now?

A: Human resources. Everybody is poaching engineers from one another. If you don’t have a strong enough project management team to execute your work, you run into problems. Project delivery is not there, productivity is not there, and risk management and cost management may not be as efficient.

The challenge for cycling paths and sheltered linkways is that there are a lot of stakeholders to deal with. You are working in proximity to residential housing. You deal with trees governed by NParks, drains governed by PUB, and so on. The good thing is that my team has been doing this for the past five to six years. Their experience allows them to tackle all these challenges. It’s not easy for newcomers to come in and just get a contract awarded.

Q: You mentioned that you always strive to improve. Is your team bigger than a year ago?

A: Right now, the whole group has close to 800 general workers. But the management and project management team has grown by about 12 to 15 percent. We are growing, but we are selective. We really look for quality people.

I have also just recruited two new senior engineers who are experts in large-scale tenders. Their main role is to participate in tenders and technical submissions for more complex jobs of 300 to 400 mSGD.

Q: What about the AM208 tender? It has been taking a while.

A: You are very well informed. Even the local analysts don’t know the tender number, haha. AM208 has not been awarded yet, but I think we may face some competition on price there from a Chinese competitor.

I believe my technical submission should score a lot higher, but with 70% of the scoring on price and 30% on technical, I’m not sure my overall score will overcome their pricing.

Q: How much are you tendering for right now?

A: The total value of tenders we have already submitted is about 600 mSGD. There’s another 600 to 700 mSGD in tenders still being prepared. So in total, about 1.3 bSGD.

We just announced the 87 mSGD contract for commuter infrastructure around the Jurong Region Line. This contract has options that will likely grow it beyond 100 million. Besides that win, I hope I can deliver some good news within the next three to four months.

Q: Based on the projects in the pipeline, how many good years do you see ahead?

A: Based on the near future, 2026, 2027, 2028 and 2029, I think these three to four years are going to be fantastic. Beyond that, it’s too far to predict, because you don’t know what changes may come.

Q: Let’s talk about the cash position. It’s grown significantly because of your profitability. How do you think about it? I know you get this question all the time.

A: The reason we are careful with dividends: Some of the jobs I tender for may require heavy upfront cash to purchase sheet piles and temporary structures before the work even begins.

The cash gives us the ability to bid on larger projects. And when clients award contracts, they look at your financial statements. They have become more vigilant since the pandemic, when a lot of contractors went bust.

If one day there is no more growth and the supply of work dries up, I will give huge dividends. But right now, we are still growing.

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Thoughts on the interview

I no longer own OKP, but clearly the company is still cheap at < 10x earnings, continues growing double digits, while expanding their orderbook by bidding on larger projects. This is one of the best managed companies in the industry.

Surprisingly, the outlook is that the ongoing conflict in Iran will not affect their large margins that much. They will be able to manage costs even if oil remains high, because they don’t consume much oil, and because their key inputs (concrete and construction steel) are bought on long term contracts matching their typical 1-2 year project durations.

When Mr. Or. talks about inflation, we can understand that the impact on companies like OKP (and for example Soilbuild), will be limited as they don’t use much oil or have short (1-2 yrs) project durations.

I think KTC/Huationg will be much more affected. These companies have lower margins to begin with, consume high amounts of fuel, and have multi-year backlogs creating a perfect storm. I would not be surprised though, if they end up making deals to raise prices. The current construction boom in Singapore is so strong, that its unlikely for these companies not to make good money one way or another. Time will tell. H1 2026 might be difficult for these companies.

I think Lincotrade, similar to OKP will not see much negative impact from higher oil, but for a different reason: Their outfitting work requires no earthworks at all. I think their demand is also a bit more price-elastic (data centers or hospitals/hotels needing the final utility and outfitting works before opening).

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Disclosure: No position in OKP.

Disclaimer: This publication’s authors are not licensed investment professionals. Nothing here is investment advice.

Performance

The portfolio returned 21% year to date, compared to ~ 0% for the S&P 500. We look ready for a 17th consecutive positive quarter.

The portfolio is currently not live available to subscribers. I’m afraid that would encourage too much copy-paste trading, exposing you too directly to my mistakes.

Subscribers have done well doing their own analysis of my write-ups though, which have performed similarly well:

February 2026 market events (old man rant)

In Feb 2026, the market realized SaaS business models were prone to AI disruption, triggered by comments from Anthropic CEO Dario Amodei:

“An AI tsunami is coming”

His words provided context for the exceptional performance of Anthropic’s latest Claude Opus 4.6 model, including Cowork and Code.

As an investor, it’s fine to agree or disagree with Dario. Take a good look at the world, and form an opinion. While doing so in 2026, I think it’s helpful to check out, and be surprised by Claude Opus 4.6, while forming an opinion. I have used it to update my positions table below, right in Excel, based on screenshots of my latest positions. It updated positions, currencies and latest prices. Surprising and handy.

I think the market is still underestimating AI. I wrote a screener for Polish stocks in early 2024 using GPT-3.5, over a year before the market started selling off FactSet, the financial data provider… It took me 4 hours.

The AI disruption in SaaS is similar to the disruption telecom providers and cable TV providers faced when the internet came along… It won’t kill companies like a fox in the night, leaving nothing behind. Rather, it will clip away their pricing power piece by piece until there’s nothing left… Criticism of AI’s limitations will evaporate, just like our complaints about dial-up internet connections did…

I have seen this movie before and I would suggest: Don’t fight the market on this…
Electric light was commercialized less than 150 years ago. Don’t try to be a genius by underestimating technological progress!

Changes and Portfolio

In this section:

• A review of the 6 new positions

• All portfolio moves and their rationale

• Full portfolio with % allocation and change vs last month

New positions:

1. Lincotrade (BFT.SI)

I love these kind of Singaporean construction companies which report growth, profitability and backlog visibility all at the same time. I try to know and follow many of them, to increase the odds of being able to swing at a perfect earnings report like the H1 2026 Lincotrade reported.

Driven by data center demand, Lincotrade reported revenue up 58%, net income up
> 400%. Order book doubled in 12 months. Looking a bit deeper, we notice a new factory coming in March 2026, and insiders still owning ~80% of the company trading at ~5x run rate earnings plus cash.

2. XMH Holdings (BQF.SI)

This is a Singaporean power solution provider, mainly to marine and data center sectors. When you build a ship, or a data center, and you need a propulsion engine, or a backup power generator, then XMH will engineer this for you. They select and integrate a commercial engine, gearbox, shaft, bearings and other parts. They have custom solutions and (semi-)standardized solutions. The company is founder led has been growing for years, but trades at only ~8x P/E.

XMH’s solutions were recently recognized by Mitsubishi for their exceptional assemblies. Mitsubishi not only selected XMH as a preferred partner, but also bought up 15% XMH’s data center subsidiary, providing the company with working capital for growth. A nice win-win.

An unclear backlog, and Indonesian tax issues, caused me to hold off on buying shares in XMH for about a year (price rising from 0.90 to 1.70 SGD).

It looked good, but there was no way to build confidence. No way to suggest that the data center projects were not a one-off… Or two-off…

That was until 2 large insider buys… This was the missing piece for me:

Looks watertight? It never is. I have seen the weirdest reasons why CEOs buy shares. Avoid delisting, avoid lawsuits, avoid bad perception… I have a good impression of this one though. Founder, good fundamentals, big buys.

Time will tell… (Married deal = large block agreed between large owners)

3. Bioxyne (BXN)

Medical cannabis producer growing over 100% and trading at 7-8x 2026 earnings.
I wrote this article on the company last week, just before the company raised guidance.

The write-up already suggested that they would meet guidance on revenue, but beat guidance on EBITDA. The company posted their Q2 cash flow statement in January, making it clear that
(1) Inventory was rising …
(2) Capex investments were being made …
(3) Some suppliers were being pre-paid …
(4) Cash was rising …

Put these things together and it was clear EBITDA/ net income would be great.

I will be reaching out to the company for some more perspective, answering some of the open questions in the article. They sounded very optimistic in the H1 call, but didn’t really provide hard data on their international expansion.

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Ticker: BXN (ASX) Price: AUD 0.045
Fully Diluted Shares Outstanding: ~2.23 billion
Market Cap: 100 mAUD (~65 mUSD)
Net cash: 6.7 mAUD

Overview

Bioxyne is an Australian pharma co making medicinal cannabis products (pastilles, flower, vapes, oils). They make their own brands and ~200 private label brands (e.g. for pharmacy chains).

The company also holds Australia’s first GMP licence for MDMA and psilocybin, and is providing these drugs to hospitals as part of medical trials.

It’s interesting because

1. They grow >100% p.a. since 2022, within a fast-growing medicinal cannabis market. Revenue grew from 2m in 2022 to ~65–75 mAUD in FY26 (guidance).

2. Strong execution across each of their pillars for success.
   The team has built an efficient GMP production facility, pioneered new product categories like pharmaceutical cannabis gummies, and is working with regulators to expand sales into Germany, the UK and LatAm.

3. Shares are undervalued at ~8x FY2026 earnings. At 100 mAUD market cap and 6.1 mAUD net cash, the stock trades at ~8x our FY2026 net income estimate of ~12.5 mAUD. For a company growing revenue at 100%+, this looks cheap.

4. MDMA and psilocybin provide future upside not in the price. Bioxyne has fulfilled 400+ patient doses for clinical trials. Revenue is sub-1 mAUD today, but the global psychedelic therapy market is projected at 14 bUSD by 2032. This is free optionality.

What do they do?

Bioxyne operates across four segments:

1. Australian medicinal cannabis (~29 mAUD FY25 revenue)
   Manufactures pastilles, flower, vapes and oils on a B2B/CDMO basis for ~200 private label brands and pharmacy chains.

2. International CBD (~1.5 mAUD FY25)
   Six years of UK/European presence through the Dr Watson wellness brand, with a 78,000-consumer database. Provides distribution infrastructure for the medicinal cannabis push.

3. International medicinal cannabis (0 mAUD FY25, ramping in FY26)
   Exporting GMP flower to Germany (~6 mAUD initial contract with Farmakem/ADREXpharma, 2.9 mAUD invoiced Q2 FY26) and the UK (~2.5 mAUD first shipment). Flower is 95% of the German market. Management aspires to ship ~10 tons to Germany in 2026 at ~2–2.5 AUD/gram. Czech and Scottish facilities in development.

4. MDMA and psilocybin (<1 mAUD FY25 revenue)
   Holds Australia’s first GMP license for both substances. 400+ patient doses fulfilled for clinical trials and authorized prescribers. 5–10 year horizon for significant scale. The global psychedelic therapy market projected at 14 bUSD by 2032.

History and leadership

Sam Watson has founded what the company now represents, and has listed it through a reverse merger in 2023.

Sam and other insiders collectively hold ~60–65%, and have quickly grown the revenue, the capabilities and the relationships of the company over the past years:

• Feb 2024: Obtained Australia’s first GMP license for MDMA and psilocybin

• Aug 2024: First pharmaceutical cannabis gummies under TGA GMP

• Aug 2024: Increased gummy capacity by 3x

• FY2025: Revenue 30.4 mAUD (up 216%), first profitable and fcf positive year

• Aug 2025: FY26 guidance of 65–75 mAUD revenue, 11.5–13.5 mAUD EBITDA

• Q1 FY25 (Sep 2025): First contract from Germany (5 mAUD)

• Q2 FY26 (Dec 2025): Record 17.2 mAUD quarterly revenue (p&l to be posted)

• Nov 2025: Received permit for UK factory (want to copy paste Australia)

• Dec 2025: Released MDMA capsules for clinical trials (PTSD treatment)

• Dec 2025: 1 mAUD agreement with customer is LatAm

• Feb 2026: Hired UK plant and Quality manager

Financials

Bioxyne has so far reported FY 2025 (July 24 - June 25) statements, and has shared their FY26 H1 revenue and cash flow report, in true Australian style.

FY2026 (Jul ’25–Jun ’26): I use H1 FY26 actuals and estimate ~40 mAUD H2 revenue based on management’s 65–75 mAUD guidance. For the rest of the P&L I use current opex growth rates, factoring in some operating leverage as Australian facility is now fully operational. I used a lower gross margin for H2 (25% vs 30%) as I expect a larger share of revenue to come from the lower-margin international flower segment.

This gives ~71 mAUD revenue, ~14 mAUD EBITDA, ~12.5 mAUD net for FY2026, just above guidance: 65–75 mAUD revenue, 11.5–13.5 mAUD EBITDA. In 2025, Bioxyne delivered revenue more than ~10% above guidance.

Competitive advantages

Cost advantage. BXN sources from >20 cannabis growers globally, and has built the world’s largest medical cannabis gummy facility, in the worlds most cost competitive Cannabis production country.

Strong product development. BXN pioneered pharmaceutical cannabis gummies under TGA GMP. Pastilles went from 4.8% to 25%+ of Australian cannabis prescriptions in a year.

Global footprint. The Australian facility is EU GMP certified, enabling direct supply into Europe, UK, Canada and Singapore. New facilities in the Czech Republic and Scotland will bring manufacturing closer to European customers.

International expansion

The company is taking its first steps into international markets, most importantly Europe, using the supply network of their currently unprofitable CBD business:

Germany: ~6 mAUD supply agreement with Farmakem/ADREXpharma for 1,600kg GMP flower. 2.9 mAUD invoiced in Q2 FY26. The German market is €1B+/year with 1m+ patients. Flower is 95% of the market, probably making it a low GM% market over time.

UK: ~100,000 patients today, expected to reach 420,000 within two years. First medicinal cannabis shipment was ~2.5 mAUD

Other EU: Czech facility and Scottish facility in development, reducing lead times from the current 2–8 weeks for export/import permits.

Warning
What really annoys me here, is the lack of follow-on announcements related to Germany. The company has not detailed guidance across segments, but their inventory comments in the Q2 report suggest they want to ship ~10-15mAUD in products into Germany in H2 FY26. Reaching that would mean they are currently shipping follow-on orders, but a press release confirming that is missing.

Valuation

At 100 mAUD market cap and 6.1 mAUD net cash, BXN trades at ~8x our FY2026 net income estimate of ~12.5 mAUD.

Applying a 13–15x ex-cash P/E to those earnings puts fair value at 169–194 mAUD market cap, or AUD 0.076–0.087 per share. That’s 69–93% upside from today.

Risks and unknowns

• Australia’s medicinal-only focus
  Australian regulations restrict BXN to medicinal cannabis. If European countries change regulations to fully allow cannabis, then Bioxyne will actually no longer be allowed to export from Australia. The UK factory will be up in a year though and will mitigate this.

• Competition
  Although Bioxyne has built a nice pastilles business, the competition in the cannabis sector is ruthless. There’s too many competitors to name, and they are all setting up GMP facilities in Europe to chase the 100-200% growth seen in key countries. I think their current Australia business is relatively safe, but the international expansion is hard to predict.

• Growth in Germany?
  Bioxyne has supplied ~5 mAUD worth of medicinal cannabis to the German market in H1 2026. We don’t have any visibility on continued orders, although German Dr. Watson product reviews are solid, and the Q2 comments about new German regulations pushing products through pharmacy chains instead of e-commerce are very positive. I just don’t understand the lack of PR here.

• European gummies?

  Although gummies are a natural form for medicinal cannabis, none of the European countries has allowed them so far, leading most “patients” to smoke their cannabis. Allowing gummies would provide an amazing opportunity for Bioxyne to use the expertise they have built up.

• Other European countries and the USA
  Several countries are moving closer to a clear framework on medicinal cannabis, providing potential (long term unavoidable) TAM growth for Bioxyne.

Summary

Sam Watson is growing Bioxyne into a unique pharma player, leading the way in medicinal cannabis, mdma and psylocybin. The company will reveal it’s earnings next week, and I think its very cheap at ~8.0x FY2026 earnings.

I think these earnings will have a positive impact on the stock, but further success will depend on positive evolution of their international business, in particular continued demand and follow on orders in Germany.

If the story continues, to be confirmed in the call on 26th of February, then the growth at high ROE can be valued at 13–15x earnings, or AUD 0.076–0.087 per share, or 69–93% upside vs todays price.

Disclosure: Long but keeping a very close eye and might change position quickly if for example Germany turns out to be stalled. Please check out the company before investing.

Disclaimer: This publication’s authors are not licensed investment professionals. Nothing produced by the Floebertus team should be construed as investment advice. Investing involves serious risks, including risk of capital. Do your own research before investing, and size your positions appropriately, in line with your own conviction and your own knowledge.

1. Growth is 58% yoy (H2 2025), driven by data center demand

2. Backlog is exploding (New orders were 50% above revenue)

3. Gross margins are increasing (Bette…

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Performance

The port…

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1. Narrow down for what we are looking for quantitatively

2. Remove several groups of stocks for Qualitative reasons

3. Add back amazing growth stocks even if P/E or ROE doesn’t fit yet

4. Show the 16 most interesting Polish stocks for the moment

5. Review the most interesting 10 in a preliminary 1 page pitch

Poland is a great place for investing, because it has an amazing economy, a low cost of being public (resulting in a high amount of companies) and valuations are low as international investors are only just finding their way to the country.

There’s over 700 listed companies in Poland. We include 692 in our population, having removed some “blacklisted” companies like CDA and Gamivo.

We are going to be a bit greedy because that just works well in this market. In the sense that we want an amazing growth stock at an unreasonably low valuation. Start by removing unprofitable companies.

That light blue part above. That’s like the Polish Russel 2000. Not saying it’s garbage… Not saying it’s not… To further side step low quality companies, we only include those with ROE > 15%, showing some quality.

We didn’t come all the way to Poland to pay for these high quality companies though, so we include only stocks with P/E < 21

As we will see soon, many of these cheap high quality companies will be small and micro caps. Not many people are looking at them, and that’s our opportunity. The best scenario occurs when they are also growing fast. So they are already undervalued, but their growth makes them visible to more consumers and investors. We then get paid for the earnings yield, the growth, and the increased visibility showing up in multiple expansion.

We are left with 42 companies that screen well. You know what’s the problem with companies that screen well? Most are still terrible businesses. This is why we exclude most of them, because they are too unpredictable (gaming, solar, energy retail, … ), too cyclical (steel, coal, paper, …) or too hard (biotech).

Finally, we add back some companies that may not have great P/E or ROE yet, but are showing such nice growth that they are hard to ignore. Today those were Inpro, Marvipol, Vindexus, Helio, Yarrl and Torpol.

We end up with 16 wonderful companies at wonderful prices.

Below are our 10 favorites from reading the Q3 reports, in no particular order.

First is Inpro, a growing residential construction company at a very low price.

Marvipol is a very similar company, even cheaper but doing significantly less well in terms of signing new sales for next year. We think next year they will come behind Inpro in sales and profits.

Next we have Passus. The company signed a contract to buy 26% of its shares in the coming 2 years, buying from early family office investors. Since locking in the price in June, the stock is up over 60%. Taking into account the buyback, the stock trades at ~8.5x implied market cap.

Vindexus is one of the cheapest companies in Poland today, at cash +3x earnings. Insiders are doing block trades at a 20% premium…

Atrem is a high quality grower playing into several growth trends

Newag is a train builder with revenue visibility for the next 5-6 years.

Yarrl is a Polish software co. This could be the next Spyrosoft, a company we found in 2022 growing 50% trading at 12x earnings. Yarrl needs to work on margin expansion though. It will happen but might take some quarters/years

Helio is one of the two growing Polish packaged nuts and dried fruits companies. This one initially didn’t make the ROE cut, but delivers growth so consistently that we included it. It reminds us a bit of Tarczyński, another Polish consumer brand which quickly doubled a few years ago after catching some operating leverage, resulting into higher net income, driving P/E down and ROE up.

Bridge Solutions Hub is next up. The company keeps executing and growing.

Finally we have Quercus. The current P/E of this funds manager is probably too low, although time will tell how much the E goes down in a bear market.

We like to study Polish companies and we like your thoughts on them as well. Let us know which one you like.

Disclosure: We own BSH, Inpro, Vindexus and Yarrl, as well as other under the radar names in Poland that didn’t make the list for Q3.

We like all of the above companies and will do some more work on them (employee evolution, cash flow conversion, business moat, employee reviews, e-commerce stats, … ) before likely buying a new position in one of them, or increasing an existing position.

Disclaimer: This is not investment advice. Before investing, validate the data within the companies audited reports, and speak to an advisor.

Thank you

• 9 years of profitability in a cyclical sector

• 15% average growth since 2015

• Hidden 100%+ growth in new orders in FY25
  (Implied within reve…

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It’s one of the most interesting setups we have ever seen, because it

• Is founder-led and owned

• Delivered ~50 consecutive profitable quarters since IPO

• Compounded value per share at 22% CAGR over 12 years (11x !! )

• Trades at 0.5x price / book (10x P/E)

• Reported 8% bookings growth, 20% backlog growth in Q3 2025

• Bought back 2% of its shares in the past 12 months

• Considers one-off asset sales to increase buybacks

• Surged 3x in 4 months the last time it traded below book (03/2020)

Write-up Nov 9th, 2025:

Overview

LGI Homes is a U.S. homebuilder, delivering entry-level single-family homes (95%) and townhomes (5%). The company is mostly active in the Sun Belt, and has ~6,000 annual closings, or ~1% of the U.S. new-home market. The company offers homes in 21 states.

History of the company and the founders

LGI was founded by Thomas Lipar in the 1990s, who together with his son Eric, started a land development business called LGI (Lipar Group Inc). The company was initially focused on acquiring undervalued raw land in emerging suburban areas, and developing it into empty plots ready to be built on. This involves going through regulatory processes like zoning and entitlements, as well as preparing the sites with essential infrastructure such as roads, utilities and drainage, before selling them to home builders.

In 2003, Thomas and Eric renamed the company to LGI Homes, and entered the Texas housing market with their inaugural homebuilding project in Conroe, a fast-growing suburb north of Houston. This first community included 337 affordable, energy-efficient starter homes designed for first-time buyers and young families. Priced under $150,000 at the time, these quick-move-in properties quickly gained traction, setting the foundation for LGI’s expansion across the state and beyond.

The Lipars consistently focused on building entry-level homes for first time buyers, aiming to increase the number of Americans able to own their home. The company has often selected cheap land near rental communities, developed the land, and sent out flyers to the nearby renters, showing the small monthly difference in mortgage payments vs rent expenses to attract buyers.

In 2013, LGIH went public at a ~$250m market cap. The market had high expectations of the Lipars, given their incredible performance up to that point. In fact, driven by their smart land acquisition and development strategies, vertically integrated with their home building business, they were the only one among the 200 largest U.S. home builders to deliver profits and growth throughout the 2005-2010 global financial crisis. Page 63 of LGIH’s 2013 IPO prospectus reads:

“Since commencing operations in 2003, we have constructed and sold over 5,000 homes, have been profitable every year despite the housing downturn, and have never taken an inventory impairment. According to Builder magazine, we were the only homebuilder among the 200 largest U.S. homebuilders to report closings and revenue growth from 2006 to 2008 when the housing market experienced a significant decline. We increased our revenue from $55.3 million ($50.5 million for our predecessor) in 2010 to $143.4 million ($76.2 million for our predecessor) in 2012, representing a compound annual growth rate of 61.0% (20.2% for our predecessor). We increased our closings from 439 homes in 2010 to 1,062 homes in 2012. Among our public homebuilder peers, we had the highest revenue and closings growth between 2010 and 2012. Since 2010, we achieved profitability within six months of our first home closings in each of our new communities in these markets.”

49 consecutive profitable quarters, driving
22% CAGR in book value per share

Since the 2013 IPO, the company has continued firing on all cylinders, being profitable every single quarter. This consistent profitability leads LGIH’s book value per share to rise, every single quarter as well:

As shown in the chart, LGI Homes grew per share book value from $8 to $90 in 12 years, for an impressive 22% CAGR, while paying small dividends along the way. This is testament to the Lipars lifelong craftsmanship of selecting the right lands, developing them into construction areas, and building attractive single-family homes on them, while opportunistically buying back stock when it is offered at a discount.

The housing cycle

LGI Homes achieves a ~20-25% average Return on Equity through the cycle, as necessary for its stellar book value per share growth. The past 2-3 years have been tough for housing, as we can see in the chart below or read in the corresponding article.

Rising interest rates have put a strain on affordability, causing home prices and home sales to stop rising and start to decline. In a typical year in the United States:

• Slightly more houses are sold than the year before (0-1%)

• Home prices increase ~4-5%

• First-time buyers represent ~30% of new home buyers

• Monthly costs of new mortgages are somewhat higher than rental alternatives

This creates a healthy environment for LGIH to convert their opportunistically acquired land into new homes and convert nearby renters into buyers. With every year passing, the assets LGIH hold (homes and land) increase in value. This provides a tailwind to Gross Margins, which asset-lighter competitors don’t have, because in a good market, the homes LGIH sells have been built on land that has appreciated significantly over the years the company held it.

This is why LGIH has the highest Gross Margins in the industry in such a market, and has consistently had about the largest GMs from ~2015-2021:

In 2024 and 2025 however:

• Marginally more houses are sold than the year before

• Home prices declined 1% YTD 25 (and even -2% for 2024)

• First-time buyers represent ~21% of total home buyers in 2025 so far

• Mortgage rates at 6-8% making buying significantly harder than renting

This causes LGIH to currently have more normal looking margins compared to competitors, not feeling the tailwind from holding land rather than land call options.

Besides the lack of land value appreciation, and home prices appreciation, and overall demand softness in housing, the current cyclical headwind is hitting LGIH extra hard. Higher interest rates are pushing first-time buyers out of the new homes market, as mortgages for new homes are currently much more expensive than monthly rent alternatives. This makes it extremely hard for LGIH’s target customer to buy a new home in 2024 and 2025.

LGIH’s performance in the 12 months until Oct 2025

Looking at how LGIH does during these tough years, we see that in the last 12 months:

• Revenue was ~$1.8 billion, vs $2.2b the year prior (-18%)

• Profits were $106m, vs $197m the year prior (-46%)

• Book value increased from $2b to $2.08b (+4%)

• Basic shares out reduced from 23.5 to 23.1 by (-2%)

• Book value per share increased from $85 to $90 (+6%)

• (No Dividend)

It’s remarkable that a 6% increase in Book Value Per Share is a bad year for LGIH, given that a good year is a 25-35% increase. There seem to be many more good years than bad years through the cycle, leading to LGIH’s 22% CAGR. The company clearly knows the art of consistently adding value, although the stock market does not always notice it immediately.

The market did like LGIH’s Q3 results, because the company stated:

- Q3 Sales orders for new homes were 8% higher than the year before

- Q3 ending order backlog was 20% higher than a year before

- LGIH is looking into selling lower priority land assets, for debt reduction

- LGIH is looking forward to buying back more shares in 2026

While this provides signs that the market may be improving and management may be able to quickly reduce the book value discount by selling assets and buying stock, LGIH is clearly not out of the woods yet, and guided for ~20% lower Q4 revenues. Longer term though, we think the housing cycle will turn and LGIH will get priced well above book value again as first-time buyers return to the market.

Current valuation

LGIH currently trades at 0.52x book value. We think the company is worth ~1.2x-1.5x book value, given its long-term track record compounding value at above 20% ROE.

The current share price is equal to 10x LTM EPS. We prefer not to value LGIH based on an earnings multiple though, given (1) They could achieve significantly higher short term earnings by lowering prices, should they like to (2) Regardless of current earnings, they own the houses and the land, and we think both are worth more than historical book value and (3) earnings of cyclical companies always look the worst at the best possible time to buy them and best at the worst possible time to buy them.

Note that in 2020 and 2021, book value per share (in chart 1 above) increased very significantly as the housing market was very strong. People had just spent their whole 24/7 life stuck inside their homes or apartments during Covid and couldn’t wait to buy a new home. Credit was cheap and rising inflation and interest rates were whispering fear into the ears of first-time buyers. “It’s now or never… “.

This caused LGIH’s book value to increase 72% in 2 years! One might think that real estate investors would turn cautious in such an environment, but instead they bid up LGI Homes to over 2x, and some days even 3x book value.

The market didn’t think LGI Homes was going to sell their inventory at 3x book value in 2021, but the market’s reliance on P/E ratio did create a stock price which implied a decade of growth at above average margins, which is possible but extremely unrealistic.

Similarly, we think today’s assessment of the market, pricing LGIH at 0.5x book, which implies a decade of low single digits Returns on Equity, is possible but extremely unrealistic.

We think LGI Homes is worth ~1.2-1.5x book value, or $108 – 135 per share. The next time it gets there though, it will likely be posting double-digit growth rates, the P/E will likely be lower than today, and the market will likely take it back to well above 2x book value before correcting, as it did in previous cycles.

What we have seen in previous cycles is that LGI Homes stock price keeps rallying well after the housing market overheats and the Fed starts rising interest rates. Similarly, today, investors are selling off LGIH while the first rate cuts provide signs of improvement for the housing market.

Why the opportunity exists

We think the opportunity exists because:

1. Investors predominantly rely on profit-based valuations, not suited to value a cyclical, interest-rate dependent company like LGIH.

2. Investors in LGIH throw in the towel after multiple years of softness in the housing market, particularly at the low end served by LGIH

3. The market cap of LGIH has declined from $4 Billion to <1 billion, likely causing some forced selling among institutional holders limited to companies with market cap > 1 or 2 billion USD, or linked to daily USD liquidity constraints

4. Tax loss harvesting, the stock being down ~50% coming into November

5. Lack of imminent turn around. While it is appealing to buy a profitable business at 50% of the value of its real estate assets, it’s not clear when the market will turn around. Compared to 1 year ago, not much has improved. In fact, margins have deteriorated and book value increased by only 6%. There is no narrative here of how and when improvement will occur. This makes it hard for investors to buy or justify buying LGIH, even trading at 50% of book value.

Risks

• Land and Home prices may decline because of population/migration declines

• Competition in the housing market may increase, suppressing margins

• Rising interest rates may cause continued weak demand and worsening credit availability, causing the company to raise capital through an equity financing

• Government regulation to unlock existing housing inventory may negatively affect home builders

Summary

LGIH has a strong track record of growing book value per share by ~20% per year, under the leadership of its founders. The stock is being thrown out after a couple of bad years in the housing market, first-time buyers staying out of the market due to rising mortgage rates. We think LGIH will quickly revert back to 1.2-1.5x book value.

Disclaimer

This publication’s authors are not licensed investment professionals. Nothing produced by the Floebertus team should be construed as investment advice. Investing involves serious risks, including risk of capital. Do your own research before investing, and size your positions appropriately, in line with your own conviction and your own knowledge.