This past week I had one of the best internal rate of returns in my entire investing career. In three days I was up 500% on a single security. Collectively I ended up over 200% on my entire weighted average purchase price of this security from last week’s purchase.
The return on this security over the past few days has helped me handsomely beat indexes so far year-to-date.
The set-up on this security was incredible. And I still think there is more upside to come as I have not sold one share.
Investment thesis: purchase long-dated warrants on an underlying stock that is setup to be sold over the next 6-12 months. If the stock is sold anywhere near my implied target price there is at least 100% upside, if not more, from the current valuation.
The set-up on this security is pretty interesting because:
The legacy holders are unsophisticated retail investors who likely want to get out at any price as they have been holders of the underlying through bankruptcy and now they have liquidity to scavenge what is left.
The security is extremely illiquid which prevents large hedge funds and institutional investors from bidding up the price to fair value.
The security just started trading last week and is relatively unknown to the investment community besides a handful of OTC investors who scrounge through off the beaten path ideas.
The underlying company has currently put up their main division for sale which could result in a large infusion of cash flows from an asset sale and the underlying trading closer to fair value.
There are massive tailwinds in the industry which the underlying is operating in which could result in a bull market and strong free cash flows for years to come.
Running a Black-Scholes option model gives a price target on the security of $20-25/share, depending on the inputs you utilize.
The security closed at $11 per share at the end of Friday’s trading day. My average purchase price is $4.23 per share, with my lowest price purchased at $2 per share. I will be looking to add to my position, if at all, if the security price falls under the $10 per share range (which it very well might given the high volatility of the security).
I hope you enjoy this research report. Feel free to reach out if you have any questions.
P.S. I am in Hawaii looking for potential investment properties for the next week or so. If anyone has knowledge on the Hawaiian real estate market I would love to chat.