Rare opportunity in expensive marketRecently, I'm having more and more trouble finding a stock I want to put my money into. You have companies like Palantir trading like they're supposed to grow 40% annually for over a decade. Apple trading at high valuation with slow and even declining revenue for their prized iPhone. Stocks are flying off the shelves left and right, the market pricing higher earnings, probably due to trump lowering corporate taxes.
Now, with the dividends I earn and my cash contributions, I look at my portfolio to see what position to add to, and I keep coming back to DRX. A rare opportunity in this expensive market. This Q2 2024 the net income doubled since last year. The operating CASH FLOW from the first 6 MONTHS of 2024 is 20% of the current market cap. Even if the company's net income declines annually by 10% every year for 6 consecutive years, they will still have close to the current market cap in cash and any earnings past that is gravy on top. The market is pricing for zero growth or declining revenue and then the ceasing of all operations by 2030. The share price doesn't well reflect the earnings. The PE ratio of 5 doesn't make sense for a company with strong fundamentals.
I've tried to imagine extreme scenarios to justify the stock price drop aside from the owners cashing out a small portion of their shares? Are the accounting numbers fake? Will the owners withdraw from the corporation and escape to another country with the money? Will the revenue growth trend for the company suddenly reverse towards zero with every contract getting simultaneously canceled without ever securing a contract again? Even if the company doesn't make a single penny from here and stops operating, the bottom is still 3$ just from the balance sheet alone. Obviously, these are all insane scenarios that won't play out. But seeing the 60% drop in 4 months, it had me preparing for the worst. I can't find a realistic reason for the sharp decrease in share price. Even with the share repurchase, they still reduced the share count to make our shares worth almost 10% more so it wasn't that negative. They promised not to pull it off again, and I trust them, given they still hold the vast majority of their shares. The owners have little incentive to mess with shareholders, as they remain the largest shareholders by far and would harm themselves most.
Over time, people will forget about the insider buyback drama and new investors hopping in who don't read every single earnings report will have no idea it even happened. The risk is so low at this stock price compared to the potential reward. It's such a straightforward business growing cash flow just chugging along. It's interesting how companies growing 10% can trade at PE of 20-30+ and DRX only at 5. This company will at least triple to 30$ from here in my opinion.
Next week, I will add to my position for the first time in a year as DRX remains a clear winner. I don't want to look back in 2 years and regret not making such an obvious decision to buy at this level. I don't see where else to put my money for a more attractive return. Given that their sector can be viewed as cyclical and that their contract revenue is a bit lumpy -although it is trending upwards- it's hard to expect them to become a high yield dividend payer since it can affect their cash flows on a quiet year and reducing dividend isn't a good look. At some point, they will stockpile so much cash they will either reinvest the cash to grow earnings or give us special dividends. I'll stick around for that.