Boston Omaha Corporation (BOC -1.30%) was one of the worst-performing stocks in the market in 2023. I won't sugarcoat it. While the S&P 500 index generated a 26% total return for the year, Boston Omaha's stock fell by more than 40%.
To be sure, the stock didn't drop for no reason. There are some parts of the business that are sensitive to interest rates, and the company's billboard business depends on advertiser demand and strong economic conditions, just to name a couple of examples. But the stock is now trading for a discount to book value, a level it didn't even reach in the depths of the COVID-19 crash.
If you aren't familiar, Boston Omaha is a holding company with four subsidiary businesses. It owns a billboard advertising business (Link Media), several fiber broadband businesses, a surety insurance company (General Indemnity), and also owns several minority investments and an asset management business under its fourth segment, Boston Omaha Asset Management, or BOAM.
The numbers tell a different story
There are some legitimate concerns about Boston Omaha's business. Progress in Boston Omaha Asset Management (BOAM) seems to be far slower than management expected, to name one major concern. And investors might be getting a bit frustrated by the lack of communication from management. Boston Omaha's management team doesn't hold earnings calls, doesn't issue commentary with earnings reports, and doesn't regularly update investors beyond SEC requirements. This may be fine when things are going well, but investors may expect a bit more during tough times.
Having said that, Boston Omaha's business itself looks rather strong. Revenue increased by 14.5% year over year in the third quarter, and all three of the core operating segments (billboards, insurance, and broadband) posted strong growth. The company has $88.5 million in unrestricted cash to pursue opportunities that arise, which is quite a bit considering its sub-$500 million market cap.
Plus, don't forget about the company's roughly 20% stake in Sky Harbour (SKYH), which went public in 2022. In perhaps the biggest head-scratcher in this year's stock performance, Sky Harbour's stock more than tripled while Boston Omaha's stock price plummeted. Plus, Boston Omaha holds warrants to buy an additional 7.7 million shares at an exercise price of $11.50 anytime before Jan. 25, 2026.
What to expect in 2024?
To be clear, I have absolutely no idea what Boston Omaha's stock price will do in 2024, and I have no desire to make an educated guess. If you had told me at the beginning of 2023 that the stock would fall 40% despite growth numbers like those mentioned earlier, I wouldn't have believed you.
Nevertheless, I'm still highly optimistic about Boston Omaha's potential and think we'll continue to see steady growth from all three of its core businesses in 2024.
The asset management side is a little trickier, but if the Federal Reserve ends up cutting rates quickly in 2024, as the market suggests it might, that could be a major catalyst (according to the CME FedWatch tool, traders are pricing in seven quarter-point rate cuts now). Lower rates should make it significantly easier for the company to raise capital to pursue investment opportunities like built-for-rent housing and fiber infrastructure.
We'll know a little more about how the business is performing when Boston Omaha releases its 2023 annual report in a few months, but I'm going to trust the process. I recently added to my position and think that the stock could end up being a steal from a long-term perspective, especially while it's trading for a rare discount to book value.
