Lee Enterprises (NYSE:LEE) is apparently in the middle of a crisis situation. I love the following chart. I bought more shares today.
Forced Liquidation = Great Opportunity
It feels like people are being forced to liquidate. My dad called me and asked me to sell because the price is falling. I said, hold on, be patient... let me re-evaluate my investment hypothesis. My father was very concerned about running into troubles with the SEC and the NYSE. Let me put these to rest. Lee Enterprises has fallen significantly in price and as such is below compliance with their listing standards. Do listing standards matter to me? Not really. Here's why.
The price that you can buy all of the outstanding shares of a company for at the current price is called its market capitalization. Truth be told, if you own all of those shares, theoretically you own all of the future discounted cash flows that the company produces. Fortunately, I don't see listing standards as a prerequisite for owning a company outright.
As we push 52-week lows, the price to value ratio continues to grow. How much would you pay for a company that has paid off $100M in debt over the last 12 months and is sporting free cash flow of $94.5M for those same months as well? How about around $33M. Sounds like a good deal to me, but wait... what's the catch?
Tons of Ugly Debt
It is true that Lee is presently trying to work through a debt-exchange that results in >13% dilution and a re-negotion of interest rates. Goldman Sachs and Monarch Alternative Capital are all for the debt exchange. My advice is that if you want to consider Lee as an investment opportunity, take a read at this 8-K and you'll wonder how something is trading at 66 cents when they just made 22 cents this last quarter. I'm prepared for lower prices, in situations like this it makes sense to keep cash available for unreal bargains.
Disclosure: I am long LEE.