Boston Omaha Corporation (BOC -1.30%) has been a terrible performer for investors this year. There's no way to sugarcoat it: So far in 2023, Boston Omaha's stock price has declined by more than 45%.
However, the recent results from the business look rather promising, and the stock is trading for its lowest price-to-book valuation ever. Here's a rundown of the key figures to know, some things we don't know, and why you might want to take a closer look at this up-and-coming conglomerate at the current level.
The next Berkshire? Boston Omaha in a nutshell
If you aren't too familiar, Boston Omaha is a holding company that has four main components to its business. There are three operating businesses -- billboard advertising, insurance, and broadband services -- as well as Boston Omaha Asset Management (BOAM), which invests money on behalf of clients and holds several minority investments made by the company.
The company has drawn comparisons to an early-stage Berkshire Hathaway (BRK.A -0.76%) (BRK.B -0.69%), and for several reasons. It is extremely focused on the long term when it comes to building its businesses, for one thing, aiming to create a self-sustaining growth machine of cash-flowing assets.
It also follows Warren Buffett's top rule of conglomerate building, in that it is willing to own noncontrolling stakes in businesses it likes. The ownership of an insurance business is another key parallel, and it is also worth mentioning that one of the co-CEOs of Boston Omaha is Warren Buffett's grandnephew, although the elder Buffett has no involvement in the company.
It's not difficult to see why the Berkshire comparisons have many investors excited. Warren Buffett's mega-conglomerate has delivered total returns of more than 3.6 million percent since 1964.
Strong results throughout the business, but some unanswered questions
Boston Omaha's third-quarter results look good. Revenue increased 14% year over year, and all four parts of the business posted strong growth. Operating cash flow was $12.2 million through the first nine months of 2023, compared with an operating loss in the same period last year.
Plus, Boston Omaha ended the quarter with $88.5 million in unrestricted cash and investments, compared with $67.8 million at the start of the year. So it's in an excellent position to pursue attractive opportunities as they arise.
There are some legitimate investor concerns that could be weighing on earnings. For one thing, it's a tough environment for advertising businesses (like billboards). It also seems like BOAM is having a tougher time than originally expected in raising capital from outside investors to pursue opportunities in real estate and broadband infrastructure.
It also doesn't help matters that Boston Omaha doesn't regularly communicate with investors in ways that most public companies do. It doesn't hold quarterly conference calls or include any management commentary with its earnings reports, for example. So there's just a lot that investors don't know about the state of the business -- such as how things are going with BOAM's fundraising efforts.
A big discount
At the end of the third quarter, Boston Omaha's book value was $17.28 per share, about 1.3% higher than it was at the beginning of 2023. But the stock was trading for about 17% less at the time of this writing. This is by far the largest discount we've seen in the stock -- even during the initial COVID-19 crash in 2020, Boston Omaha's price stayed well above its book value.
BOC price-to-book-value data by YCharts.
Not only that, but it's worth noting that the company's largest individual investment, Sky Harbour (SKYH), is up 84% since the end of the third quarter on a strong earnings report of its own and a capital infusion from a respected investment group. Boston Omaha owns about 23% of Sky Harbour, which is a $520 million company itself, so this adds even more to the company's intrinsic value.
The point is that Boston Omaha is still doing a good job of executing its growth strategy in its main operating businesses, plus its asset management business has tons of potential if it can successfully raise capital. With the stock trading for such a large discount to book value for the first time, now could be a smart time to take a closer look.
