Tuesday, May 25, 2021

Friedman Back in Favour

A few months ago, I wrote about Friedman Industries (FRD) as a reasonably profitable (over the years) company that was currently in disfavour. It was a net-net and traded for less than half of its tangible book value. In a shocking turn of events, Friedman now trades at a double-digit premium to book value!

This is just how Mr. Market rolls: stock prices fluctuate far more than any reasonable estimate of a given company's actual value. I don't really understand how Mr. Market can think an unlevered business' value can change so dramatically over the course of a few months. But I'm not here to judge; obviously, he's flush with cash.

So I exited. I believe that the stock will continue to rise; after all, momentum's a thing in the market. But it's not my thing. I sold it all the way up past book value, as I'd rather build cash for a rainy day at times like these rather than speculate on continued momentum. Given enough time, I have no doubt the mechanism of supply and demand will cause steel prices to come back to earth and then some, and Friedman may once again be hated enough that I'd buy it.

Disclosure: No position

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