Double or Nothing, One of the Stranger Stocks That I've Seen in a While
OK, I'll bite. I just read a compelling investment case for Biofuel Energy Corp. (BIOF) even though it has more than doubled since the start of the year. This is one of the stranger stocks that I've seen in a while. I could easily see it doubling or being worth nothing by this point next year.
To make a long story short, the super investor David Einhorn of Greenlight Capital made a bad investment in this biofuel company. A month or two ago he made a proposal to them to purchase a luxury home builder and financier that he co-owns with Jim Brickman in exchange for 49.9% of the company's stock for him and 8.4% for Brickman and that he would give them a $150 million loan at 10%.
So is this a good deal for BIOF shareholders? If the company's board accepts it, and that's a big IF, Farukh Farooqi of a successful special situation-esque fund called HBC Marquis Partners thinks so. He recently presented the following information on the company...
- BIOF has $174/share in net cash
- And more attractively, $178 million or $29/share of net operating loss carry forwards
- "Assuming an unlevered return of 15% - 20%, a transformed Biofuel could generate earnings per share of $1.50 - $2.50."
- Applying the current median earnings multiple of other public home bulders to that (16) would result in a stock price of $24 - $40 per share.
It seems like a lot could go wrong with this deal, but if it does go through and the home builder is managed decently even at a multiple that's half that of other companies in the sector this stock would double. Of course, it also could be worth nothing ;). Anyhow, I'm taking a flier on this in CAPS. If anything, it will be interesting to follow.
Thanks for reading. Have a great weekend! As always let me know if you come across any interesting special situation-like investment ideas.