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Berkshire Hathaway has dominated the market for holding companies for a long time. However, over the years, smaller and more exciting holding companies have emerged with refreshing new approaches. These small holding companies could seriously become something huge in the future. One play I'm looking at is MBHCF, a holding company which began in 2016 that is actively building a portfolio of profitable, earnings accretive, debt-free small to medium enterprises (SME) that are expected to have a higher-than-normal growth profile as part of a larger organization. The company's operating model leaves management of the acquired companies to operate autonomously and fully accountable to develop and grow their businesses.
PROS:
Strong financials
The company has a strong and competitive P/e ratio of 8 (TTM), revenue growth of 19% (from 2019A to 2020A) and gross margin of 20.9% (from 2019A to 2020A). P/b ratio is also healthy at about 0.3. They have produced surprisingly promising numbers despite the hit taken from Covid-19.
Dividends
The company ended the year in profit despite being heavily disrupted by the Covid-19 virus. The dividend is paid out at $0.0059 per share, which is about 2% of the current share price.
Diversification
The company has completed a total of 26 acquisitions so far, with 12 acquisitions in 2020 alone. The rate at which MBH is acquiring companies is impressive, and the acquired companies have very high profitability.
Small market cap
With a market cap of just over 20M USD, there is huge growth potential for this company as it continues with its expansion model. Small cap stocks have historically produced greater annual returns than mid-cap and large-cap stocks due to greater growth potential and better returns in the long term.
Bullish estimates
Analysts suggest that it could have a price target of $10 based on its financials and projected estimates, resulting in an upside of over 3000%.
Here’s a link to the analyst report:
https://www.otcmarkets.com/stock/MB...-CORPORATION-PLC-AT-10-PRICE-TARGET?id=302215
However, there are still things to consider when looking into such a stock. Here are some things I’m thinking about.
RISKS:
Dilution of shares
The total number of shares outstanding amounted to 70.5M at the end of 2020, up from 39.2M at the end of 2019. Dilution of shares is always a concern as it lowers the EPS. However, it is important to note that the extra shares were issued as payment to acquire companies, so this could very well be a strategic move if these acquisitions generate sufficient profit for MBH. Future profits could also be used to buy back shares to improve EPS.
Some concerning metrics
EBITDA and net income growth have fallen about 67% and 63% respectively in 2020 compared to 2019. Much of this is attributed to possible disruptions due to the pandemic and also the fact that the company is still relatively new and growing.
Uncertainty about post-Covid situation
We all know how disruptive the Covid-19 situation is, especially to small businesses. It’s not certain if all companies are able to bounce back and operate at their full potential. As such, being a holding company, MBH is open to the risk of underperforming if their acquired companies face difficulty in recovering from the situation.
In conclusion, micro-caps are often risky. Whether you enter a position in this stock or not depends on how much you believe in the expansion model and future profitability of MBH. Personally, I believe it's a risk worth taking because of its prospects and financials. Going long term on this seems to be a decent play. What do y’all think?
PROS:
Strong financials
The company has a strong and competitive P/e ratio of 8 (TTM), revenue growth of 19% (from 2019A to 2020A) and gross margin of 20.9% (from 2019A to 2020A). P/b ratio is also healthy at about 0.3. They have produced surprisingly promising numbers despite the hit taken from Covid-19.
Dividends
The company ended the year in profit despite being heavily disrupted by the Covid-19 virus. The dividend is paid out at $0.0059 per share, which is about 2% of the current share price.
Diversification
The company has completed a total of 26 acquisitions so far, with 12 acquisitions in 2020 alone. The rate at which MBH is acquiring companies is impressive, and the acquired companies have very high profitability.
Small market cap
With a market cap of just over 20M USD, there is huge growth potential for this company as it continues with its expansion model. Small cap stocks have historically produced greater annual returns than mid-cap and large-cap stocks due to greater growth potential and better returns in the long term.
Bullish estimates
Analysts suggest that it could have a price target of $10 based on its financials and projected estimates, resulting in an upside of over 3000%.
Here’s a link to the analyst report:
https://www.otcmarkets.com/stock/MB...-CORPORATION-PLC-AT-10-PRICE-TARGET?id=302215
However, there are still things to consider when looking into such a stock. Here are some things I’m thinking about.
RISKS:
Dilution of shares
The total number of shares outstanding amounted to 70.5M at the end of 2020, up from 39.2M at the end of 2019. Dilution of shares is always a concern as it lowers the EPS. However, it is important to note that the extra shares were issued as payment to acquire companies, so this could very well be a strategic move if these acquisitions generate sufficient profit for MBH. Future profits could also be used to buy back shares to improve EPS.
Some concerning metrics
EBITDA and net income growth have fallen about 67% and 63% respectively in 2020 compared to 2019. Much of this is attributed to possible disruptions due to the pandemic and also the fact that the company is still relatively new and growing.
Uncertainty about post-Covid situation
We all know how disruptive the Covid-19 situation is, especially to small businesses. It’s not certain if all companies are able to bounce back and operate at their full potential. As such, being a holding company, MBH is open to the risk of underperforming if their acquired companies face difficulty in recovering from the situation.
In conclusion, micro-caps are often risky. Whether you enter a position in this stock or not depends on how much you believe in the expansion model and future profitability of MBH. Personally, I believe it's a risk worth taking because of its prospects and financials. Going long term on this seems to be a decent play. What do y’all think?
