RILYK - B. Riley: Unsustainable Profitability And Eroding Net Asset Value
2024-06-16 09:14:09 ET
Summary
- My last assessments on B. Riley (initially Strong Sell, then 'Neutral/Hold' to protect against a short squeeze) were accurate, generating +6.42% of value.
- Two quarters later, B. Riley's core operating profitability has worsened, leading to an erosion of ROIC. It has a negative net interest coverage and its debt coverage ratios have spiked.
- All this is leading to a bleed of excess liquidity in the company, which has fallen 25% over the last 2 quarters.
- Despite a negative net asset value after, in my opinion, rightly excluding goodwill, the company's equities are trading at 2.7x P/B, indicating a mispricing.
- The common stock is a crowded short, so I'm hesitant to bet against it. My thesis focuses mostly on line items including and above EBIT, so it is valid for the other security classes too; where I prefer RILYM the most if forced to choose.
Performance Assessment
In my last coverage of B. Riley (RILY) on Feb 18, 2024, I had issued a 'Strong Sell' rating. But shortly after, as I noticed a short squeeze was beginning, I updated my stance on Feb 27, 2024 to a 'Neutral/Hold', communicating this in a pinned comment :
Pinned Comment from Author's Last RILY Article (Author's Last RILY Article's Comment Section, Seeking Alpha)
