Boston Omaha: Volatile But Interesting Company (NYSE:BOC)

Over the last several years Boston Omaha Corporation (NYSE:BOC) has been trading very volatile, going from a low of approximately $13.00 per share on March 16, 2020, to a high of about $50.00 per share on February 15, 2021.

Since then, its share price has moved in wide swings, finally seeming to have found support at about the $19.00 per share mark in mid-June 2022. It has since bounced from there and is trading at a little under $29.00 per share as I write.

While the company has been showing some decent growth in its major segments, the market hasn’t been rewarding it on a sustainable basis, probably because of it being a small conglomerate that is working toward investing in a variety of market segments to generate consistent, long-term growth.

For that reason, its performance can change from quarter to quarter depending on the depth of its spending to boost its existing businesses, as well as entering new segments that have potential to throw off a lot of cash.

In this article we’ll look at some of its recent numbers and the challenges the company faces going forward.

Some of the numbers

Revenue in the third quarter of 2022 was $21.4 million, up about $7 million from the $14.5 million in revenue generated in the third quarter of 2021. Revenue for the first nine months of 2022 came in at $58.6 million, up almost $17 million from revenue of $41.9 million in the first nine months of 2021.

Breaking it down by segment, revenue from Billboard Rentals was $9.9 million in the reporting period, up close to $1.9 million from the $8 million in revenue from the third quarter of 2021. Nine-month revenue from Billboard Rentals in 2022 was $28.9 million, compared to revenue of $23.1 million in the first nine months of 2021.

Broadband services revenue in the third quarter of 2022 was $8.1 million, compared to $3.8 million in the third quarter of 2021. Revenue for the first nine months of 2022 was $20.2 million, almost double the $11.3 million revenue in the first nine months of 2021.

Premiums earned in the third quarter of 2022 were $2.86 million, compared to $2 million from the third quarter of 2021. For the first nine months of 2022, premium revenue was $7.56 million, compared to $5.5 million in the first nine months of 2021.

Insurance commissions in the third quarter of 2022 were $333,830, compared to $584.082 in the third quarter of 2021. Revenue in the segment for the first nine months of 2022 was $1.58 million, compared to $1.6 million in the first nine months of 2021.

Investment and other income in the third quarter was $157,484, compared to $85,696 in the third quarter of 2021. For the first nine months of 2022 it was $339,192, compared to $226,986 in the first nine months of 2021.

Net loss in the quarter was $1.4 million, or (0.05) per share.

Cash and cash equivalents at the end of the reporting period was $38.5 million, compared to $72.5 million as the end of calendar 2021.

Current performance

As the company stands today, it has been enjoying several years of revenue growth across the segments it competes in, with the exception of insurance, which has been showing some weakness.

What’s important to consider with the existing segments it competes in is, while they would probably enjoy consistent, long-term growth in them, I believe they wouldn’t justify the seemingly overwhelmingly positive sentiment many investors have for the company.

Even if management weren’t to increase the number of segments it’s going to compete in the future, it would probably do okay on an incremental basis.

But I don’t see that representing anything remarkable at this time. The key for BOC is first, its management team, and second, its ability to allocate capital in new market segments to deliver sustainable, long-term growth.

I think the reason BOC gets a lot of positive sentiment is because its business model is easily understood since it has a similar business model that Warren Buffett has incorporated into his Berkshire Hathaway holding company.

So far, the company has been able to generate enough cash to be able to reinvest in and grow its existing businesses, while at the same time investing in new businesses, the key to outperforming in the years ahead will be if it’ll be able to allocate capital in a way that drives meaningful revenue and earnings in a sustainable way. That’s the promise the company offers, but it’s far from proving it can do so.

Identifying companies and opportunities in the market that are undervalued and offered at a good price isn’t easy, and BOC management is going to have to do so if it’s going to provide shareholders with outsized returns in the future; something many of them believe they can deliver on.

But again, as the company stands today, it’s for the most part growing in the segments it competes in, but in my opinion it’s not enough to justify the very optimistic expectations investors have for the small conglomerate.

Major challenge

BOC does compete in businesses that are recession-resistant, so in case of a prolonged economic decline, by which I mean through the end of 2023 or into early 2024, it is likely to find some support with the businesses it has today, although it would without a doubt take a hit if that’s the scenario that plays out.

And under recessionary pressures, its Billboard Rental business – its biggest revenue contributor – would probably be the most impacted of the segments it competes in because of companies and institutions having to make decisions on prioritizing spending.

So even while the company is recession-resistant, it isn’t recession-proof. For that reason, the stock would come under pressure even in the best-case scenario of a recession, even if it competes in segments that aren’t likely to have as much impact on their performance as many other segments will have.

Another thing the company needs to show is it can improve in its insurance business. Since the float is such a big part of the benefit of competing in insurance, and important in having available capital to deploy when opportunities arise, investors should watch it closely to see if it can grow its insurance business in a meaningful way.

Conclusion

Boston Omaha Corp. has an easy business model to understand, but it’s not as easy to deliver on the potential a conglomerate has. Not only does management have to accurately identify certain growth markets, but also the companies and segments within those markets that are undervalued and offer sustainable growth potential far into the future.

So far, the company has done a decent job in those areas, but the key to significant long-term growth isn’t going to be incrementally improving its existing businesses, but in continuing to identify and acquire quality businesses that will boost revenue and ultimately, earnings.

The combination of growth in its current businesses while making quality acquisitions is what will determine the potential growth BOC has before it. Even though many are convinced this is going to happen, the reality is management has yet to prove it.

Based upon management’s record to this day, I do think the company warrants a small investment, taking into consideration it’s going to remain volatile for some time. And after the nice increase in its share price, and the company approaching its 52-week high, it may be time to wait for a pullback if taking a position in or thinking of adding to a position in the stock.