(Unfortunately I did not have the time to fully research this.)
Improvements in shale extraction technology and a glut of capital have basically destroyed oil and natural gas prices. While Exxon’s management is ok, the company cannot defy commodity prices. Its upstream assets aren’t worth that much anymore because they’re inherently leveraged to oil prices. But despite the dramatic decline in oil prices, Exxon’s share price remains high.
The put options are interesting to me since implied volatility is low (20-30%+) and the company is overvalued. The options are barely more expensive than SPY puts (in terms of implied volatility), except that oil prices fell by half and America’s GDP did not.
A back of the envelope calculation puts Exxon’s private market value at <$129B versus a market cap of $359B.
(*Disclosure: Long NRCIB.)
Idea type: GARP and/or share class arbitrage
Three years ago, I wrote about National Research Corporation, an obscure and illiquid company with a market cap of half a billion. Since then, the company has continued to grow (around 11-14%/year) while the share price has stayed the same. According to the 2015 10-K, EPS for class B shares was $2.52 so the GAAP P/E is around 14. However, due to this company’s unusual structure, GAAP earnings overstate the true P/E.
The arbitrage trade might also be interesting since the spread between the B and A shares should be somewhere around 1:1 to 6:1 or higher (arguably close to 6:1), but is currently 2.16:1.
(This is not an actionable idea.)
From researching dollar stores, one of the things that struck me was that you can purchase a pregnancy test for a dollar. Amazon’s #1 best seller pregnancy test costs $12.33– a magnitude more expensive than dollar stores. Amazon is clearly not competing on price!!
By comparison, a more discounting-oriented online retailer like Newegg has razor-thin gross margins of between 8 to 11% (before overhead). Newegg sells computer parts online. Its financials are available via the S-1 filing on EDGAR due to Newegg’s aborted IPO.
Victor Luis, Coach’s CEO, has told investors about his brand transformation plans. In practice however, many aspects of his brand transformation plan have not panned out. Coach has succeeded in discouraging its fans from shopping at retail/mainline stores without actually reducing the discounting of the brand.