I initiated a small position in ALJ Regional Holdings earlier this year. I was hoping to add more when the stock drifted below $3, but was not able to build out the position to its desired size.
I thought ALJJ was worth at least $3.60, and quite possibly $5-$7.
Then a few weeks ago, I read Dave Waters’ (Alluvial Capital) letter to partners. I have tremendous respect for him as an investor and writer.
He made ALJJ his largest position. Some key takeways from his assessment:
- accounting obfuscates FCF (amortization of intangibles); true cash flow > reported earnings
- using numbers, not terribly different from the ones I used, he came up with a valuation of $4.70, somewhere between my bear and base cases
- the jockey, Jess Ravich, provides upside optionality
I have been waiting patiently for the price to dip back closer to $3 to increase my position.