Why Michael Burry bought Wolverine Worldwide - and what happens next
Burry might have made a name for himself in the mainstream media with the blockbuster, The Big Short, but before the mainstream fame, Burry was a well-known deep value investor who focused on fundamental analysis and picking cheap stocks.
And despite the mainstream fame he has made for himself, Burry continues to invest in cheap, out of favor stocks, historically outperforming the market.
We follow every stock Burry invests in and attempt to reverse engineer the reasons why he bought them. This not only allows us to look closer at the stocks Burry likes, but we get to also learn how his brain might operate as a financial analyst.
A lot of people know the famous names that Burry invests in, like GEO Group (GEO), but some of the smaller, off the beaten path names, hardly get a mention.
One of these names looks particularly interesting. After building a financial model, reading through the annual report, listening to the most recent earnings calls and going through the presentation, I think I understand why Burry has invested in this name.
Here is a high-level overview of the “Burry Thesis”:
Insiders aggressively buying their own stock in the open market
A new management team with a bonus plan that creates shareholder value
Rapidly cutting costs and focusing on cash flows
All cash flows used to de-lever the balance sheet and de-risk the operation
Selling underperforming assets to bring in free cash flow and deliver accretive earnings
Huge working capital position that will convert into free cash flow over the next 12 months
The back of the napkin analysis implies that the new management team has a huge incentive to cut costs, convert working capital into cash, sell underperforming assets and generate strong free cash flows. This is based on the insider buying the team has done in the open market, along with their new bonus plan.
This stock hardly gets any attention from the mainstream media when it comes to a Burry stock pick. I don’t know of anyone who has written up a comprehensive writeup on the name. This might be the first.
Hope you enjoy it.
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