The Business Just Posted Its Best Numbers Ever. The Stock Went Down.

I want to tell you about a quarter.

A manufacturer, one that has been making things in America continuously since 1898, just put up the best second quarter in its 127-year history. Revenue of $106.1 million, up 8.9%. Gross profit of $34.9 million, up 13.1%. Gross margin expanded 123 basis points. Trailing twelve-month revenue is now $434.7 million, the highest figure in the company’s existence. Customer deposits and deferred revenue, which is the closest thing this company gives you to a backlog number, rose 17% in six months.

Strip out the noise and core operating profit for the quarter grew 22.8% on 8.9% revenue growth. That is operating leverage. That is a manufacturing business firing on every cylinder it has.

The stock went down.

Now let me tell you about the balance sheet, because it is the most misread set of numbers I have come across this year.

The company holds $111.5 million in cash and another $128.0 million in Treasury bills and certificates of deposit. Call it $239.6 million in liquid money, up from $223.9 million at year end. Total debt is $7.7 million, non-interest-bearing, owed to a related party. The $50 million revolving credit facility has zero drawn on it and has had zero drawn on it for years. Net cash after every dollar of debt is $231.8 million, or $30.72 per share.

The stock trades in the low sixties.

Then there is the gold.

The CEO has been buying physical precious metals for years. Not as a hedge. As a conviction position, held in physical form at financial institutions through an established broker, marked to quoted market prices every single day. The company carries $130.1 million of it today. At $4,400 an ounce that implies roughly 29,600 ounces of gold-equivalent metal sitting in a vault with this company’s name on it. Net of the open trading liability, the position is worth $95.8 million, or $12.70 per share.

Add the two pools. Net cash of $30.72 per share plus net metals of $12.70 per share gives you $43.42 per share in identified liquid assets. Cash, Treasuries, and physical gold. Against a stock in the low sixties.

Which means the market is valuing everything else at roughly $133 million.

Everything else is a $435 million revenue manufacturer with twelve factory locations across six states and Canada, roughly 2,400 employees, 34% gross margins, brand names that have been the industry standard for three generations, and approximately $50 million in annual core EBITDA.

$133 million of enterprise value. $50 million of EBITDA. That is 2.7 times.

Private equity is paying 9 to 11 times for HVAC manufacturing businesses right now. The most recent published sector data puts equipment transaction multiples near 11 times, up almost two full turns year over year. Services businesses have settled around 9.5 times. Those are the live comparables, the prices professionals are actually writing checks at, today, for businesses that are not as good as this one.

Two point seven is what the public market is charging you.

Run the sum of the parts at 8 times, which is the floor, the number you would assign to a mediocre capital-intensive distributor and not to a 127-year-old franchise with dominant positions in narrow niches, and you get roughly $91 per share. At 9 times, $97. At 10 times, $103.

So why is it in the low sixties?

Because the headline earnings number for the quarter was a loss of $5.41 per share, and every screen, every data feed, and every automated summary in the world picked that up and moved on. Nobody read the second line. The loss has nothing to do with the factories. The manufacturing business had a record quarter while the loss was happening, and I can show you exactly where the money went and exactly how much of it was real.

There are 344 shareholders of record. The public float is 1,324,020 shares. No analyst covers this. No institution can build a position without moving the price on itself. It is in no index, has no conference calls, no investor days, no press releases, and no investor relations department. The controlling shareholder owns roughly 75% and has no interest in closing the gap.

That is why it is cheap. That is the only reason it is cheap. There is nothing wrong with the business, the balance sheet, or the management.

But if you are reading this, you can act on it.

The rest of this write-up is for paid subscribers. You get the name, the ticker, the full quarter torn apart line by line, the decomposition of the commodity loss into what was real and what was paper, the updated sum of the parts, my cost basis, and the position sizing framework I use for names this illiquid.

You also get everything else in the portfolio. I spend my weeks in the dustiest corners of the public markets, the pink sheets and the deregistered family holding companies, looking for exactly this.