Selling Butler National Corp ($BUKS)
151% return (68% Annualized) since original post (1.8 years ago)
Here is a link to my public portfolio in Google Sheets where I record buy & sell decisions: Curious Investing Portfolio
Price on date of first blog post: $0.67 USD
Current Price: $1.68 USD
Market Cap: $113.55M
$BUKS was a successful pick for me returning 130% since my original post almost 2 years ago. Substantially all of this increase has come in the last year → even though I identified the company as cheap, the market can take time to recognize it.
Reasoning for Sale
They just released their FY25Q2 earnings which were quite solid: good growth in Aerospace & operating profitability, near all-time highs Aerospace backlog, and the company has been buying back shares. However, I feel the price is close enough to intrinsic value for me to re-deploy the funds to other opportunities. The stock could continue to rise with momentum on its side (or it could drop from here); I never expect to time the exact top on a sale.
FCF conversion
Although the company is cheap on a P/E ratio (~8 P/E) the company will always require re-investment in the form of maintenance capital expenditures (CapEx).
The company recently expanded their operations to a new hangar, new office, and has been buying planes (likely for resale) which has limited the amount of income being converted to free-cash-flow in recent years. Some of this spend leads to revenue growth which is great, but it is hard for me to determine how much income will convert to cash in the future.
Casino Business Model
The aerospace business is still growing at a good rate and their backlog is at all time highs, this appears to be a quality business.
However we’re also paying for a casino which requires significant capital reinvestment with little growth. This was ok when the company was cheap and actually gave us a strong floor in the stock, but now will act as a drag on the ROIC of the overall business.
Opportunity Cost
After the recent run up in price I feel that there are better investment opportunities for my money. I could be wrong, but time will tell.
Other
My general strategy is becoming more focused → instead of finding something optically cheap and waiting for the market to recognize it, I am trying to focus on what I perceive as “quality” companies. I still try to buy these quality companies cheap, but often the discount to intrinsic value is much harder for the market to calculate and perceive.
I won’t rule out buying these optically cheap companies in the future and I still consider being able to identify them a valuable tool in my toolkit.
Big thanks to Daniel Zeff, from whom I originally found the idea.