Pour one out for Aaron's Company $AAN, our small cap universe gets ever smaller.
Participate in capitalism lest it die a death of neglect.
I have not yet written about The Aaron’s Company (AAN), but it is a small part of my portfolio, and I had sold puts at a strike of $7.50 for income. It wasn’t the best idea on my list, but it had seemed to have bounced off of the bottom and was prime for selling puts. I thought I had at least two years of income to come from the furniture retailer before the Covid pull forward wore off. With $100 million operating cash flow in the last 12 months, and a price to sales of 0.10, it was a relatively safe place to write puts, and those are few and far between.
In a few years when the durable goods market recovers, historical price to sales ratios would imply that $30 a share would not have been unreasonable. The take private is occurring at $10.10 per share, or a price to sales of 0.15 compared to their more long run average of 0.50. I have confidence that the acquirer will do quite well, and we small cap enthusiasts have another feast plucked from our mouths by this inefficient market. I place no blame on AAN, why should they stay public when there are not enough value investors to bring their price to something reasonable? I place blame on my fellow countrymen and the dearth of capitalists who are participating in public markets.
When Ludwig von Mises was asked how do you know if you are living in a socialist economy, he responded that as long as you have a functioning capital market it is still capitalism. We run the risk of losing capitalism by neglect. What are we to think of a capital market where a company with $2 billion in revenue can trade at a market cap of $200 million for want of participation?
To my fellow countrymen, participate in capitalism lest ye lose it altogether. Do we want to live in a world of passive free riding where Larry Fink votes for all of us? I say no. The in vogue past time of wagering on ball games should not be the sport of gentlemen, for our marketplace to be healthy, those energies need to be directed to predicting the future of businesses and not of circuses. Predicting the outcome of business is far more noble as capital allocation is what drives job creation and brings forth new technologies, and the outcome of business is far more eventful and more dramatic than any ball game.