Sell BBX Capital (BBXIA)
Price: 7.42.
Original recommendation Price: 3.17
Return: +172%
I originally recommended buying BBX Capital (BBXIA) in October 2020 at a price of 3.17, shortly after its spin-off from Bluegreen Vacation Holdings (BVH).
Today, I’m closing out the recommendation at a price of 7.42, and a profit of 172%.
I wish I had closed the recommendation out earlier this year when the stock was almost 12 per share, but at that time business was booming and the company had just announced another share repurchase authorization of $15MM.
So why am I closing out my recommendation now?
1.) The fundamentals of the business have worsened.
Inflationary pressures and supply chain disruptions are negatively impacting one of BBX’s portfolio companies, Renin (home closets and doors).
The real estate market continues to be hot in Florida which will benefit BBX’s current properties, but building new developments is more challenging due to inflation and supply chain issues.
BBX’s confectionery business, IT’SUGAR, is doing well and has fully recovered from the pandemic. I expect seasonally strong performance in Q2 and Q3 of 2022.
Taking into account all of these puts and takes, the business is performing worse than in 2021. Not terrible but not great.
2.) Share repurchases have stopped.
My bigger concern is that share repurchases have stopped. I took a look at the most recent 10-K, 10-Q and Proxy and noticed that no shares have been repurchased
This is somewhat surprising given the decline in the stock price and because the valuation looks attractive.
By my math, BBX Capital has $6.71 per share of net cash and notes receivable. The company should be buying back stock hand over fist.
And without the buybacks (i.e. visible signs of shareholder-friendly behavior), investor concern could pop up regarding corporate governance.
Bottom line, I’ve lost conviction in the idea and am happy to move on to higher conviction ideas.
BBX will stay on my watch list, and I may revisit it in the future. SELL
