New Special Situation Idea - 15% of My Portfolio
Stock Thesis
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A Small Builder's Big Moment
Sometimes the best investments hide in plain sight, wearing the clothes of yesterday's problems.
I found one recently - a small homebuilder trading at $4 a share.
Nothing glamorous.
Just a company that shouldn't be public anymore, and finally admits it.
I've made this 15% of my portfolio. Here's why.
The Stranded Asset
Picture a homebuilder stuck in no-man's land.
Too small for the public markets, too big to ignore.
They build 1,200 homes annually in a world where you need 3,000+ to matter.
Management knows it.
The market knows it.
Everyone knows it.
But here's where it gets interesting: they control 7,500 lots in prime territory. In today's world of land scarcity and permitting nightmares, that's not just valuable - it's strategic gold.
The CEO, an ex-investment banker, has been refreshingly honest: "If we can't scale to 3,000 homes annually, we shouldn't be public." In May, they hired specialized M&A advisors and raised the white flag.
The "For Sale" sign is up.
The Math That Matters
Recent transactions tell the story. One comparable company just sold their optioned lots for $90,000 each to a land banking firm. Another builder was acquired, with their lots valued at similar levels.
Apply those metrics to our 7,500 lots and you get enterprise values suggesting $5.50-7.00 per share. From today's $4, that's 40-75% upside.
But the real kicker?
The operational turnaround hitting right as they shop the company. Management spent two years refreshing their product line and renegotiating vendor contracts.
The result: gross margins jumping 400-500 basis points, with $4 million in annual cost savings hitting the books.
The Perfect Storm
The company's improving fundamentals reduce execution risk for any buyer.
Multiple buyer types are circling: big public builders needing lots, Japanese firms with cheap capital, private equity discovering homebuilding's cash generation.
Management also owns 76% of the stock.
In December, insiders bought another $7 million worth at $5.00 per share. These aren't financial tourists - they're committed to maximizing value.
Why 15%
This is basic arithmetic wrapped in a corporate catalyst.
Here's our rough calculations:
The downside is maybe 20-25% if no deal happens
The upside is 40-75% when it does
With 80%+ odds of success based on management's public commitments and buyer appetite
That's the kind of 2:1 or 3:1 risk-reward that deserves meaningful capital.
If I'm right, this position could add 6-11% to my entire portfolio value. If I'm wrong, it's a manageable hit that won't derail the long-term plan.
The Timeline
Industry veterans suggest 4-6 months from announcement to deal closure. We're already 2+ months in since they hired advisors.
Management seems eager to get this done - every quarter they wait burns through more valuable lot inventory.
Now comes the hard part - patience. M&A deals move on their own timeline. But with this much conviction and this much upside potential, I’m happy to wait.
Sometimes Mr. Market serves up exactly what value investors dream of: asymmetric opportunities hiding in forgotten corners.