One “investment theme” that I’m drawn to are balance sheet transformations.

These need to be big swings in financial position to qualify… My favorite setup is a company going from a decent net debt position (maybe 2-4x leverage) all the way into a net cash position. Most often this happens when a multi-segment business sells a division for a large sum or at a great price tag.

This stock didn’t quite get all the way to net cash but it’s now <1x debt/EBITDA from >4x. That’s enough to make some big changes in capital allocation priorities.

The thesis is pretty simple —

• Sold division at huge premium while industry valuations remain low

• Big swing in financial position opens up capital allocation changes (buybacks)

• Remaining business is less capital intensive and highly cash generative

• Management anticipates doubling EBITDA by 2025