So I was thinking today about how the $NNBR stock is valued even after taking into account their capital structure.
So let's do a little thought experiment and consider the nastiest, most grotesque way for NN to deal with their problematic capital: dilution. They have $150M of rred stock they need to pay off.
Converting ALL of this to common stock at current market prices of $1.7 would yield roughly 204M of outstanding shares. That is roughly 75% dilution.
Now, if the company gets a re-rating to 9x EBITDA (reasonable since their capital structure suddenly stopped being a hindrance), this yields an EV of $450M with their $50M of EBITDA.
Dividing this to 204M of outstanding shares gives a share price of $2.20. That is still 30% upside from the current market prices.
And obviously this kind of dilution simply will not happen. So the actual valuation mechanism must be more optimistic than that.
Even if we make it more disgusting by converting all of their debt and pref to common at $1.5 per share. This would yield closer to ~225M shares.
Taking an EV of $450M again, get a share price of $2.00. A little over 15% upside from current levels.
So to me, the company looks mispriced even when taking into account their capital structure - oh and I'm not even taking into account the fact that the company's fundamentals, EBITDA and FCF are improving at a good pace.