Seeking Alpha: Talgo's Rail Opportunity Looks Frustratingly Binary

By and large, I think investors do well to stay away from binary investment outcomes where the stock is liable to be a big winner or a big loser, with not much ground in between. That may be an unfair assessment of Spain's Talgo (TLGO.MC), but the success of the company (and its shares) rests upon securing multiple high value rail bids, bids that Alstom (OTCPK:ALSMY), Bombardier (OTCQX:BDRBF), CAF, CRRC, and Siemens (OTCPK:SIEGY) will be competing for as well.

Talgo certainly has some technology in its favor, but companies like Alstom, Bombardier, and Siemens didn't build multibillion-dollar order books on the basis of blatantly inferior offerings.

I've tried to value Talgo on weight scenario basis that incorporates high win-rate, low win-rate, and moderate win-rate scenarios. Altogether, I come up with a fair value of EUR 6.70 per share today, and most of my bearish scenarios produce fair values in the EUR 3 to EUR 4 range, versus a current share price of EUR 4.50.

Readers should note that there is no ADR available for Talgo, so any investors who wish to purchase these shares will have to do so on the Madrid Stock Exchange (Bolsa de Madrid). Most of the larger brokers can and will handle these trades, but investors certainly need to ask themselves whether the added risk and hassle is worth it.

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Talgo's Rail Opportunity Looks Frustratingly Binary