There are two risks I see in a company that is only 22% owned by the public:
1). Short term risk (specially for one as small as ARLCF)-- it will be very thinly traded. At any given time, it is difficult to buy and sell a large no. of shares.
2). Long term risk -- No adequate representation from shareholders. If we think management is not doing a good job, we have no voice.
For this reason and also due to the lack of available information, this company is not a very satisfying long term investment, if the amount of capital you have invested is such that you will feel compelled to actively monitor your stake.
I am invested in ARLCF mainly for three reasons:
1). Knowledgeable insiders (Marathon, Hapoalim) bought in at $3.50 per share. Therefore, from that, one may assume that the intrinsic value of the company presently is very close to that amount.
2). Nortel has valued its subsidiary Arelnet at 60 million two years from now. On that basis, ARLCF's 64% share of that is worth 38 million.
Divided by roughly 5.5 million shares outstanding of the parent Co., ARLCF ought to be worth $7 per share within two years -- and that is not counting the value of the IDEAL business. That is just the value of ARLCF purely on what Arelnet is worth to Nortel.
3). In the meantime, Management(whom you reported as owning 49% of the company), has an incentive to make business decisions that will cause ARLCF to trade above $5.50 for 20 consecutive days within a year, so they can oblige Marathon and Hapoalim to exercise their warrants at $4.50 per share, which gives the company cash.
So it is possible for ARLCF to trade at least $4.50 and $5.50 per share within the next twelve months, and $7 per share within two years.
I am not married to the stock however, and I will sell quickly if I can find another stock -- with the same or better upside potential -- that I understand better and can buy for a reasonable price.
Over the past 10 days of severe market downturns, a number of larger cap stocks, actively traded and with a lot more information available, have been getting close to my buy range.
Because of the amount of information available on actively traded stocks, they are more satisfying to own because it is easier to get news that can help me interpret price fluctuations.
Thankfully, the nice thing about ARLCF is that when the rest of the Market is down, it has held steady at an average price of $3.50 per share much of the time. So there is little downside risk for me to hold it, until I have bought another stock to replace it with.
The capital I have invested in ARLCF is committed to the stock market, and I do not want to sell it if I will only end up holding cash that earns a measly 4 to 5 percent a year. At least with ARLCF, there is a possibility that my $3.50 will be worth $4.50 or even $5.50 or more within a year, and $7 within two years.
So I do not want to sell my ARLCF for cash, but will swap it on any given day for a more actively traded stock that I find satisfying to own, bought at a justifiable price.
Hope this helps, and good luck to your own evaluation and decision. |
