FORTY — per share price in a choppy seaPosted: February 18, 2014
As it is the case for all postings in this blog, my standard disclaimers apply for this posting. However, since this posting discusses investments, I urge you to review the disclaimers laid out in the About section with extra diligence. Moreover, even if you have already reviewed these disclaimers in the past, you need to review them again, as they are subject to change without notice. Do it now, and remember that whatever I say in this blog posting is simply my opinion — it is not science, it is not advice, and it is not an attempt to make you act in any way whatsoever.
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In an earlier posting (here,) I wrote about the continued holding company discount around FORTY, the equity of Formula Systems (1985) Ltd., noting that Formula Systems has a market-capitalization that is significantly lower than the market capitalization of its controlling stake in its three subsidiaries, Matrix IT, Magic Software, and Sapiens International.
Reviewing the posting it occurred to me that I had forgotten to highlight that the reason that it was hard to capitalize on this discount (it is a clear arbitrage opportunity, of course,) is the near-complete lack of trading liquidity and extreme price volatility.
I have written at length about the trading liquidity and associated volatility (here and here,) getting some mileage out of illustrating the volatility in terms of leverage (did you, for instance, know that with the leverage inherent in the volatility of FORTY, you can buy a $350,000 dwelling for precisely five cents down, or that you could put up $643, leveraging up to $4.5 billion, and buy a Nimitz class carrier?)
This volatility is currently rearing its ugly head with the price of FORTY oscillating by $3 to $5 dollars (and that is on an equity trading in the (absurdly cheap) $25 to $30 range,) which is ironic since Magic Software, one of Formula Systems’ three subsidiaries has just released its earnings results, yielding the enormous growth in revenue and income that we have become used to with Formula Systems and its subsidiaries (revenue increased 15% on a year-over-year basis and operating income grew 34% on a year-over-year basis.)
Dont be a Mooch!
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