I'll concede from the get-go that valuation is never an easy or
foolproof exercise; the best an investor can hope to do is make some
reasonable assumptions and estimates and respond appropriately as new
data come in. There are cases, though, where the valuation difficulty
level is well above average, and I believe Melrose (OTC:MLSPF, MRO.L) is one such example.
Management
here has a well-established "buy, improve, sell" model, but investors
really have no choice but to make some very broad estimates (or guesses,
really) with respect to what future acquisition activity will look
like. In my mind, that makes this more of a "buy-and-hope" type of
stock. I don't mean that to denigrate management in any way, nor cast
aspirations on its ability to generate value by identifying
underperforming assets that it can acquire and improve. What I do mean,
though, is that this value creation exercise is integral to the value of
these shares, and without a firm sense of what Melrose will buy, there
is a great deal of uncertainty in the valuation today.
Read the full article here:
Melrose A Tough-To-Value 'Buy And Hope' Story
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