A misunderstood and unpopular company selling at 1 EV/EBIT, with a history of strong shareholder returns.

It was recently oversold due to a unique accounting adjustment. This shocked investors, but it also shocked management into making some overdue changes that will benefit shareholders in the long term.

Note: I looked through 50 low EV/EBIT companies and this is the first good opportunity that I found. No one else is covering it, so I am. I should have submitted this when it sold at an EV of 0 last week. After a 50% run-up. I’m kicking myself for for the delay, but lesson learned: “Don’t take vacation".

This is, in essence, a software company. Since 2020 it has averaged $42mn in earnings, 86% of which has been returned as dividends and buybacks. It is now selling for an enterprise value of ~$50mn. This is an asymmetric bet with limited downside. In a base case the company should be worth $188mn, and with successful cost reductions would be worth $332mn. Now selling for ~$150mn.

• This company is an asset light business that carries no major liabilities on its books. It is a "toll booth" type business.

• The company has a net cash position of ~$100mn and a market cap of ~$150mn. It has no present default risk.

• 2021-2024, the company has returned an avg EBIT of $42mn, while it has on average returned $36mn to shareholders in dividends and stock buybacks.

• Historically, on average, it has traded at an EV/EBIT ratio of 35.