I did buy shares in the company, on the basis of it being...

I did buy shares in the company, on the basis of it being sufficiently below my assessed valuation of $7.20/share, derived by forming a view of mid-cycle earnings and the capitalising same at 10x EV/EBIT:



The stock price is notoriously volatile, and it got to that assessed valuation, and then some, in reasonably short order, so I sold.

Not exactly the most elegant form of investing, I admit; more a case of merely being on the right side of market randomness. Ordinarily, if a business is a multi-year growth compounder, I am happy to continue to hold the shares even if they trade above my assessed valuation, because I know that time is on my side, and that the growth will inevitably chew down the multiples.

But the nature of the ELD business model - it is basically a weather derivative - means that it can never be a high conviction investment, so when the stock trades at, or above valuation, then it makes sense to sell. This implies a bit of short term-ism creeping into the investment process, which I try to avoid, but it is hard to do so when a stock price gaps up and down between big discount to valuation and fair value over relatively short periods.

Like now, for example, the stock is valued at around 7.5x EV/EBIT and 6.4x EV/EBIT, which is a 30% discount to where I assess fair value to be.

It isn't a great quality business but it's better than the mere 7.5x EV/EBIT which the market is affording it, and is the reason I am back re-visiting to see how it stacks up against some other stocks which have cratered in the latest bond market rout.

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