MMarkets have not been kind to investors so far in 2022. This is especially true for tech and small-cap stocks, both of which have underperformed the top indices so far in 2022. small cap that was taken to the stake is Boston Omaha (NYSE: BOC), a small-cap conglomerate launched in 2015. The stock is down 25.8% year-to-date, even as the company continues to expand its operating business and make smart investments. In fact, with this decline, Boston Omaha stock has only risen 42% since the 2015 takeover, sharply underperforming the stock. S&P50079% total return over the same period.
Boston Omaha is being left for dead by many investors right now. Are they right? Or does that mean it’s time to buy stocks?
What is Boston Omaha?
Capitalized by current co-CEOs Adam Peterson and Alex Rozek in June 2015, Boston Omaha is a company with a broad mandate to increase intrinsic value per share while maintaining an “uncompromising financial position,” according to its initial letter to the US. shareholders. This gives the two executives a broad mandate to allocate the cash they have to different industries and minority investments. His actions and business plan have led some to call him ‘Baby Berkshire’, a reference to the conglomerate Berkshire Hathaway and how he does business.
So far, the company has focused on a few main areas. First, it has invested more than $100 million in billboard assets, whose advertising faces generate steady cash flow for shareholders. In the 2021 shareholder letter, Peterson and Rozek said the assets are now generating more than $1 million a month in cash flow, or $12 million a year. They are not high growth assets, but they can generate sustainable profits that management can then reinvest in other areas of interest.
Second, Boston Omaha has invested approximately $20 million in various surety insurance operations which it now calls General Indemnity Group. In 2021, the unit underwrote $9.3 million in premiums, but is still in its early stages and not that profitable. However, it should provide a steady flow of capital – otherwise known as “float” – for Boston Omaha to invest in other assets such as Treasuries, bonds and securities as it grows.
Third, Boston Omaha has a fast-growing broadband/fiber business, which we’ll discuss in the next section.
Currently pushing hard in broadband
Over the past few years, Boston Omaha has seen a lot of value in rural broadband/fiber ISPs. In 2020, it spent $41 million acquiring Airebeam, which operates in Arizona, and Utah Broadband, which (you guessed it) operates in Utah. These acquisitions have helped Boston Omaha scale easily in the industry, and it now has 18,200 subscribers who brought in $15.2 million in revenue and $4.6 million in EBITDA last year. In addition to these acquisitions, it launched a new venture called Fiber Fast Homes to partner with home builders to install internet services in new developments.
On April 1, Boston Omaha announced another broadband acquisition, this time of a company called InfoWest for $49.4 million. The deal is significant for a company the size of Boston Omaha, but will add about 20,000 new Internet subscribers to its operations. Hopefully, the combined broadband entity will start generating plenty of cash flow for Rozek and Peterson to reinvest.
There are still tons of dry powder left
At the end of the first quarter, Boston Omaha had liquid investments and cash/equivalents valued at $172 million. Nearly $50 million of that will go towards the InfoWest acquisition, but the company will still have more than $120 million in dry powder to invest more. This is a significant chunk of Boston Omaha’s $625 million market capitalization.
And don’t forget cash flow from broadband, display and (potentially soon) insurance operations. Relative to its market value, there is a mountain of cash to potentially deploy, with valuations falling across the board due to the bear market. This could be a lucrative environment for Rozek and Peterson to acquire/invest in some cheap assets and could be a crucial time to build future shareholder value.
So is the action a buy?
There are a lot of moving parts in Boston Omaha. We couldn’t even discuss in detail the company’s asset management business, which owns stakes in Houses of dream seekers and Sky Harbor Group valued at over $50 million each. It also creates a real estate investment fund in which investors can participate. This section of the business, called Boston Omaha Asset Management (BOAM), held minority stakes valued at $141.5 million at the end of 2021.
If you’re considering investing in Boston Omaha, you need to decide whether you like Rozek and Peterson’s style of investing and whether all of these allocation decisions have created and will create long-term shareholder value. With the stock trailing the S&P 500 for the past seven years, now may be the time to buy stocks at a discount, setting you up for fantastic returns over the next decade and beyond.
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Brett Schafer holds positions at Boston Omaha Corporation. The Motley Fool has positions and recommends Berkshire Hathaway (B shares), Boston Omaha Corporation and Dream Finders Homes, Inc. The Motley Fool recommends the following options: long January 2023 $200 call on Berkshire Hathaway (B shares), short January 2023 Put options of $200 on Berkshire Hathaway (B shares) and short calls of $265 in January 2023 on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.