The GameStop saga opened another chapter this week as Keith Gill (aka Roaring Kitty) came out of hiding to disclose a $116 million position in the Meme stock. GME opened 74% higher on June 3 before skidding more than $12 by the close, but still ending the trading session with a one-day gain of 21% to trade for 2800 times estimated next-12-month earnings!
To be sure, nobody is buying the video-game retailer based on the $0.01 of EPS expected for 2024, and the P/E drops to 467 based on the current $0.06 consensus analyst estimate for 2025, while management refilled the coffers by taking advantage of the mid-May price spike to raise $933 million via an ‘at-the-market’ equity offering. Still, no matter how the valuation is sliced and diced, GME is not a value stock, much less Deep F***ing Value, Mr. Gill’s Reddit handle, but that does not preclude the price from soaring…or crashing.
VALUE IN VOLATILITY – BANK OZK
Outside of the goings on in Meme-land, I am often left shaking my head in trying to understand short-term price gyrations for stocks not the subject of such social media attention.
Case in point, shares of Bank OZK (OZK) sank nearly 15% last Wednesday following a re-rating from Buy to Sell by Citigroup analyst Ben Gerlinger. Incredibly, there was nothing negative emanating from the Arkansas-based bank or the financial sector in general.
Instead, Mr. Gerlinger called attention to two large loans (representing 3.8% of OZK’s non-purchased loan portfolio) the bank had underwritten to fund construction of a Mixed-Use Project in Atlanta and a big Life Sciences Project in San Diego.
Bank OZK has committed nearly a billion dollars to develop a series of life science projects in San Diego over the past two years. In Atlanta, the Echo Street project is near the Georgia Tech campus in west downtown Atlanta. According to the project’s website, Echo Street contains 300,000 sf of office space, 292 apartment units, 50,000 sf of retail space, 16,000 sf of event space, 20,000 sf of artist and maker space, and outdoor entertainment space of 6.5 acres.
The fear over the Atlanta loan evidently stems from a “lack of interest” related to office leasing perceived by the analyst with concerns about the life science industry in general cited as an issue for the San Diego loan.
No doubt, traders have itchy trigger fingers when it comes to regional banks, but the stock recovered a chunk of the lost ground as management released quite a few details on the loans to attempt to ease worries.
I think the figures in the notes above should offer long-term-oriented investors some comfort, especially as these loans are still partially funded. Obviously, I would prefer to hear that the properties are fully leased, but management comments suggest that fears of looming massive write-downs may be misplaced.
I believe the company deserves the benefit of the doubt given multiple decades for the current management team at the helm sidestepping a multitude of crises along the way. True, OZK has higher credit risk in the areas in which it lends, but it typically achieves a secured/1st mortgage position in projects’ capital hierarchy, and I note that the same regulatory filing cited above states, “Management referred to its April 17, 2024, Management Comments document and reiterated the guidance contained therein.”
Trading for 6.7 times NTM EPS estimates and yielding 3.8%, Bank OZK really is Deep F***ing Value.
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