The honest answer is I'm not sure. I looked at the company pretty closely more than a decade ago, so I had some modest familiarity with it.
Now, I have a huge sheet where I track potential ideas, and I had FSTR ranked near the top — with *zero* idea why I did that. Over the holidays I did a ton of work on that sheet and getting through some of the the ideas I'd highlighted, and the more I looked here the more I liked it. At the least, it's a pretty interesting story (by investing standards anyway).
Hi quick question, if you had to put a number (1-10 , ten being highest probability of bankruptcy)
What would you say is the likely hood of $FSTR going bankrupt if we enter recession because of debt and negative FCF?
Given the debt levels and my experience with companies promising “rosy” outcomes so far none have been able to execute as promised but at least (in my case) both generating significant cash flow
I'd go with a 2 on that scale. Leverage does look high now, but net debt should come down in Q4. They're borrowing at SOFR plus 225 basis points, I believe, which is not a spread that suggests real financial stress. And the lenders amended the credit agreement, raising the debt to EBITDA covenant to allow the VanHoose deal to go through. They're being treated like a solid credit, I'd put it that way.
Definitely get your broader point, and not going to pretend there's no risk here. But the cyclical issue really focuses on VanHoose - the tailwind from government wins should arrive no matter the economy (unless you want to talk about second-order effects with Republicans controlling the house and maybe pressuring that spend if tax revenues stall out).
I think the risk here is more earnings/cash flow disappoint and the balance sheet pressures the equity value more than earnings/cash flow turn negative and the company goes Chapter 11.
How on Earth did you find FSTR? Through insider buying? I'm ordering a concrete turret for my rental:
https://www.vanhooseco.com/custom-projects/
The honest answer is I'm not sure. I looked at the company pretty closely more than a decade ago, so I had some modest familiarity with it.
Now, I have a huge sheet where I track potential ideas, and I had FSTR ranked near the top — with *zero* idea why I did that. Over the holidays I did a ton of work on that sheet and getting through some of the the ideas I'd highlighted, and the more I looked here the more I liked it. At the least, it's a pretty interesting story (by investing standards anyway).
Hi quick question, if you had to put a number (1-10 , ten being highest probability of bankruptcy)
What would you say is the likely hood of $FSTR going bankrupt if we enter recession because of debt and negative FCF?
Given the debt levels and my experience with companies promising “rosy” outcomes so far none have been able to execute as promised but at least (in my case) both generating significant cash flow
Hi YZ,
I'd go with a 2 on that scale. Leverage does look high now, but net debt should come down in Q4. They're borrowing at SOFR plus 225 basis points, I believe, which is not a spread that suggests real financial stress. And the lenders amended the credit agreement, raising the debt to EBITDA covenant to allow the VanHoose deal to go through. They're being treated like a solid credit, I'd put it that way.
Definitely get your broader point, and not going to pretend there's no risk here. But the cyclical issue really focuses on VanHoose - the tailwind from government wins should arrive no matter the economy (unless you want to talk about second-order effects with Republicans controlling the house and maybe pressuring that spend if tax revenues stall out).
I think the risk here is more earnings/cash flow disappoint and the balance sheet pressures the equity value more than earnings/cash flow turn negative and the company goes Chapter 11.
Alright. Appreciate those details, and that is very helpful. Thank you
Are you entering on Monday?
No, not on Monday. I think it's likely I'll enter at some point soon, but it won't be immediately.
We need to update my portfolio on here, which is out of date, but we'll do that and then I'll update if and when I go long FSTR.