Is Boston Omaha a Buy After Falling Profits?

Boston Omaha (NASDAQ: BOMN) recently released its third quarter results, and despite strong numbers all around, the stock has fallen significantly. In this fool live Video clip, recorded on November 15, contributor Matt Frankel and Focus on industry Host Jason Moser discusses the numbers and why Frankel still believes in the business model.

Jason Moser: The gains also for Boston Omaha here last week, Matt and Boston Omaha come out of the water this year, rack up a few percentage points. Nothing crazy one way or the other, but it’s a business that is talked about a lot on this show and in our Foolish universe. Well this is another one of those companies that you really like. Seems to be at least somewhat built into this Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) mold. Looks like it works. Looks like it was another uneventful one, if not the right quarter.

Matt Frankel: Yes. It’s incident-free by design, I guess you’d call it. Boston Omaha just held its annual meeting last weekend. It was sort of a Berkshire-style annual reunion. It is obviously not yet on the same scale. But it’s in Omaha. They rent an auditorium like Warren Buffett and Charlie Munger do every year.

Moser: He’s Buffett’s nephew, isn’t he?

Frankel: It is his grand-nephew.

Moser: Great nephew. OKAY.

Frankel: I think he’s your sister’s grandson, I think. That would make a great-nephew.

Moser: But now you make me walk like the Space balls and the Black Helmet, these brothers, uncles, cousins, nephews, former roommates.

Frankel: Warren Buffett has no involvement with Boston Omaha, at any official level I would say that, but it’s definitely modeled on Berkshire Hathaway. Very early stage. I wanted to go to their meeting last weekend, but I didn’t. I can’t go to Vegas and then to Omaha back to back. I want to come home at some point. Billboard rentals still represent the majority of their business, which is important for all investors to know. More than half of their income comes from the billboard industry. That increased 13% year over year, rebounding well from the pandemic when many companies stopped advertising so much.

Broadband revenues are the fastest growing part of its business. This has more than tripled year over year. But this has been fueled by acquisitions, not necessarily organic growth within the company. They acquired a major wireless service provider – or not, fiber optic wireless network providers. In the end, they posted a loss of $ 0.89 in earnings per share. But it was not very significant. If you remember with Berkshire we say their earnings per share is not significant as it reflects the unrealized gains in their stock portfolio?

Moser: Yes.

Frankel: The same applies here. They recorded a loss of $ 33.7 million in investment quotes. First of all, for a company that barely hit $ 1 billion in market cap, that’s a big loss.

Moser: Sure.

Frankel: This is because their biggest stock is Dream Seeker Homes (NASDAQ: DFH), by far, which has become public and this stock has decreased considerably. But they didn’t sell. It is not a realized gain, it is an unrealized gain in their investment portfolio. The EPS number is not really significant. Book value, which they see as their biggest barometer of growth – it’s not a perfect metric, but it shows how much they increase intrinsic value over time – which has increased by 22% of a year. year over year.

Moser: Attractive.

Frankel: Good growth in book value. I’ll close with a few things to look at with Boston Omaha before I add, you can ask me what you want about this. Hope to know the answer. They make it difficult. They just released a 10-Q. They don’t really go through the revenue highlights, but two things: Their SPAC is merging with Sky Harbor, it’s still pending. This is something to watch for in the fourth quarter. They invest.

It will be their biggest investment yet when it comes to fruition. The most interesting treat I could find in their 10-Q: They acquired land in Nevada. They didn’t say how much, they didn’t say where exactly. They plan to start a fourth business, a home construction business. Where they build townhouses or single family homes for the specific purpose of owning them on their balance sheet and renting them out, much like a real estate investment. They just mentioned this as a footnote in their 10-Q in typical Boston Omaha style. I am excited about this part of the business.

Moser: They make you work for it.

Frankel: They do.

Moser: It’s really interesting. Considering the housing shortage, right? I mean, I think we can all agree that’s a problem right now. We have a housing shortage, we have a lot of catching up to do. It’s a riskier bet, so to speak, to get so heavy in real estate like that, and have it on your balance sheet. But generally speaking, in the long run, real estate is a good investment. I feel like this is something that has a lot of potential.

Frankel: Yes, this is interesting just because the housing market is going crazy lately, but the rental market, everyone is always talking about the affordability side of houses. But the rental market is also skyrocketing, especially in some of those Sun Belt markets like the one I’m in. Rents are increasing. There is just a great shortage of rental properties. They have a great relationship with our home builder. I mentioned that Dream Finders Homes was their biggest investment. They are a big part of it. They have a good relationship there. They have the financial support to do it. It will be interesting to see if they can successfully build houses with the aim of renting them out and getting a good return on them.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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