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