B. Riley: Unsustainable Profitability And Eroding Net Asset Value (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• My last assessments on B. Riley (initially Strong Sell, then 'Neutral/Hold' to protect against a short squeeze) were accurate, generating +6.42% of value.
• Two quarters later, B. Riley's core operating profitability has worsened, leading to an erosion of ROIC. It has a negative net interest coverage and its debt coverage ratios have spiked.
• All this is leading to a bleed of excess liquidity in the company, which has fallen 25% over the last 2 quarters.
• Despite a negative net asset value after, in my opinion, rightly excluding goodwill, the company's equities are trading at 2.7x P/B, indicating a mispricing.
• The common stock is a crowded short, so I'm hesitant to bet against it. My thesis focuses mostly on line items including and above EBIT, so it is valid for the other security classes too; where I prefer RILYM the most if forced to choose.

Read the full article here.