Every so often a stock turns up on the distressed pile looking like an obvious mispricing, and the interesting part of the work is figuring out whether it actually is one or whether the market has already priced something I haven’t found yet. Ashford Hospitality Trust (NYSE: AHT) is the second kind. At around $3 a share ($3.22 as of the 6/22/26 close), sitting on a portfolio of hotels that on a decent day appraise for more than the mortgages against them, the common looks like a cheap call option on a hotel recovery. The catch, and with these situations there’s always a catch, is that AHT doesn’t fully control its path to value realization (mostly a sale or liquidation). It is run by an external advisor, Ashford Inc., which holds a contractual termination fee that ranks senior to every other claim in the capital structure, and that fee is large enough to absorb most or all of whatever the common might otherwise collect in a sale.

Once I put that fee where it sits in the waterfall, the stock stops being a cheap option on the assets and becomes a thin, binary residual: potentially worth nothing, potentially worth a few times today’s price, with very little ground in between. I want to be clear that this is a speculative situation with a genuine path to zero for the common. This isn’t an investment I’d sink my kids’ college funds into. But I’m writing it up because the way the pieces fit together makes it unusual and I think it’s been left for dead (maybe rightfully so). This is anything but a layup.

A quick snapshot before the walk-through:

• Price: $3.22 as of today’s close (June 22, 2026)

• Shares outstanding: ~6.5 million (after two reverse splits…)

• Market cap: ~$20 million (very thinly traded, often less than 50k/day)

• Total debt: ~$2.6 billion, roughly 94% floating, ~7.9% blended rate

• Preferred: 9 series, ~$372 million liquidation preference, dividends suspended

• Portfolio: ~60 hotels, ~15,000 rooms, upper-upscale full-service

• External advisor: Ashford Inc. (I wouldn’t let these guys advise my worst enemies)

The business

AHT owns hotels. It doesn’t run them and it doesn’t really manage itself either. The properties are operated by third-party managers (a large share by an Ashford affiliate), and the company as a whole is steered by Ashford Inc. under a long-term advisory agreement. AHT pays Ashford a base advisory fee scaled to its total market capitalization, reimburses a pile of costs, and the broader Ashford complex collects additional fees for hotel management, project management, debt placement, and insurance. That external structure is not a side note. It is arguably the single most important feature of the investment (right alongside the hotel portfolio cap rate estimate), and it’s why a pile of hotels that could be worth more than their mortgages does not translate cleanly into value for the people who own the common shares.

The underlying business is what you’d expect: revenue per available room drives the top line, the assets consume capital with maintenance and upgrades, and the whole thing fluctuates with the travel cycle and with interest rates. None of that is unusual for a hotel REIT. What makes AHT its own animal is how much debt it carried into a bad stretch and who stands where when the proceeds get divided up.

How it got here

The short version is that AHT went into the pandemic over-levered and spent the years since digging out, on terms that mostly favored everyone except the common. COVID gutted hotel cash flow, the company took expensive rescue financing to survive (including a term loan it later repaid with a sizable exit fee), and it leaned on its own broker-dealer to sell a large block of non-traded preferred stock to raise capital. Along the way it ran preferred-for-common exchanges that an activist holder publicly called self-dealing, suspended the common dividend, and did two reverse splits to hang onto its listing.

More recently the playbook has been divestment: sell hotels, mostly at 6% to 7% cap rates, and use the proceeds to pay down mortgage debt. The portfolio has shrunk from around 100 hotels to roughly 60. The problem is that about 94% of the remaining debt floats, so as rates climbed the interest bill swelled even as the asset base got smaller, and the math at the equity line kept getting worse. The company suspended its preferred dividend in January 2026. First-quarter 2026 brought a net loss, a $113 million impairment across nine hotels, a stockholders’ equity deficit of roughly $695 million, and a going-concern warning that pointed at about $1.9 billion of non-recourse loans maturing within a year. After interest, the equity has been burning cash, with the FY2025 Adjusted FFO at negative $34 million.

The Braemar situation

Here’s where it gets even worse, and where I’d point anyone trying to understand the governance. It’s also why I’m not mincing words when it comes to my description of the external advisor relationship. It’s bad. They might as well be the advisor from hell.

Ashford Inc. advises a sister hotel REIT, Braemar Hotels & Resorts (BHR), under the same kind of agreement. In 2025 Braemar put itself up for sale. The fee to exit the Ashford advisory relationship in a change of control was calculated (by Ashford Inc. and BHR) at a “fair and reasonable” $574.83 million, then negotiated down to a $480 million company sale fee. For reference, BHR operates a platform smaller than AHT. The advisor collected a $17 million advance on signing and stood to receive another $25 million if a buyer wanted out of the affiliated management and project agreements.

Just recently, Braemar’s board looked at the math and concluded that a sale wasn’t the value-maximizing path, largely because that fee skims proceeds off the top before public shareholders see anything. Instead, they decided to terminate the advisor and internalize management while staying public. A pretty remarkable outcome. A company with willing buyers in the asset market chose not to sell because the cost of leaving its advisor was too high relative to what shareholders would keep.

AHT has the same advisor, the same fee mechanism, and an agreement that AHT amended in March 2026 to make the structure even stickier. The advisory term was pushed out to 2055, the termination fee was defined as thirty years of foregone advisor earnings discounted at 2% (which works out to a multiple of roughly 22 times), and AHT gave up its ability to terminate. The advisor also has access to the company’s bank accounts and the contractual ability to escrow the fee. I’m not in the business of guessing intentions, and I’d rather let the structure speak, but it is hard to look at this arrangement and conclude that the incentives point at the AHT common holder.

(You can read what BHR’s largest shareholder had to say about Ashford Inc.’s termination fee here: Al Shams Investments Responds to Braemar Board's Brazen Act of Self-Dealing)

The debt

The mortgage stack is about $2.6 billion all-in, all of it non-recourse, and most of it floating. The pieces worth highlighting:

• Highland: 18 hotels, about $724 million, matures July 2026. The loan was paid down $10 million in January to roughly 65% of appraised value, which backs into a collateral appraisal around $1.1 billion. This is the pool with real equity cushion.

• JPM8: 8 hotels, $325 million, already in maturity default with default interest piling on top of the stated rate.

• Morgan Stanley: 11 hotels, about $410 million, extended out to March 2027.

• KEYS A/B: 9 hotels, roughly $252 million, already in receivership and effectively gone.

The non-recourse feature cuts both ways. It caps the damage from any single underwater pool, because AHT can hand the keys back rather than write a check (which is exactly what happened with the KEYS hotels). But it also turns the near-term maturity wall into a string of refinance-or-surrender decisions, and at something like 8% money against hotels, a few of those pools simply won’t survive. The handful that carry obvious equity, Highland chief among them, are the ones that actually matter to a recovery case.

The preferred

There are nine series of preferred, with a combined liquidation preference of about $372 million at $25 a share. The dividends are suspended and accruing. In a liquidation or change of control these are fixed cash claims that sit ahead of the common, and the large non-traded series (the ones sold through Ashford’s own broker-dealer) redeem in cash with no conversion into stock. The primary offering of those non-traded series was shut down at the end of 2025, so the roughly $372 million is effectively close to a ceiling on this claim that climbs only with the more time the preferred dividends are suspended and they accrue in arrears (~$30 million per year).

The preferred pricing here is pretty telling. The listed Series D trades around $9, roughly 36% of its $25 par. So the market expects the preferred to be impaired, despite a recent “independent” appraisal suggesting otherwise. Since the preferred obviously ranks above the common, that data point speaks volumes about why the common trades where it does

The advisor fee and the wind-down

On a change of control, the advisor’s termination fee is paid out of net proceeds first, ahead of both preferred and common. Using AHT’s own formula (about 22 times foregone advisor earnings) and anchoring to the Braemar fair-value figure on a comparable platform, I peg the fee at roughly $575 million in the base case, inside a range of about $480 million (the Braemar negotiated number) to $630 million (allowing for AHT being a larger platform, and for the kind of ancillary-fee inflation a Braemar activist complained about). On top of that there’s about $66 million already owed to Ashford on the balance sheet.

It’s worth pinning down what actually trips that change of control, because it isn’t only a sale of the whole company. The agreement also counts asset sales. Dispose of 20% of the company’s assets by book value in any one-year period, or 30% over any three years, and a change of control is deemed to have occurred. Sales to Braemar are excluded, and the ordinary one-off dispositions get kept under that line on purpose. The small Jacksonville hotel the company sold in June for about $11 million is exactly that sort of sale, and it does nothing to the fee. What matters is the two troubled loan pools. Highland and JPM8 are carved out of the calculation only through November 15, 2026, and after that date, if the lenders take those hotels back, the handbacks begin to count toward the threshold. That timing is why the company’s own going-concern language names November 16, 2026 as the date the fee could begin to be triggered. There’s a cash-flow test bolted on as well, where the advisor can pull the trigger only if the portfolio’s annualized cash flow after debt service sits below $65 million, but AHT is already well under that figure, so the test reads as satisfied rather than protective. Put the pieces together and the catalyst isn’t the steady drip of small sales. It’s the forced surrender of Highland or JPM8 once the carve-out lapses this November, or a sale of the whole company, and either route pays the advisor first.

Stack it up and you have something north of $900 million of claims (the super-priority fee plus the preferred) that has to be satisfied before the common collects a dollar, against a portfolio whose equity value above the mortgages lands in roughly that same neighborhood. That is the entire ballgame. The fee isn’t a rounding error against the equity, it’s comparable in size to the equity, and it gets paid first. Unbelievable.

So what’s the common actually worth

Running the waterfall estimate creates the shape of the bet. Value the hotels across a range of cap rates and per-key prices consistent with AHT’s own recent sales (call it 7% to 8.5% caps and $165k to $240k a key), subtract the debt, the leases, the accrued interest, and the money owed to Ashford, then take out the super-priority fee, then the preferred, and whatever survives is the common.

• Bear: zero. The fee alone exceeds what’s left after the mortgages, so the preferred and the common are both wiped.

• Base: roughly $13 a share.

• Bull: roughly $112 a share. (this is incredibly unlikely; waterfall mechanics are highly sensitive to the range of inputs due to leverage impact on residual value)

• Probability-weighted: high-$30s (I used my standard 30/40/30 bear/base/bull weighting here as a default; if I assume a 50/40/10 weighting to risk more to the zero case, the probability-weighted value drops to ~$16)

  

Now the part that keeps me honest. At ~$3, the market is implying a portfolio value right around where the base case breaks even, an implied cap rate near 8.7% on the hotels, which is a notch worse than where AHT has actually been transacting. The current price is not obviously wrong. It is pricing the common as a sliver of option value sitting right at the knife’s edge where the assets, the fee, and the preferred net to about zero. Push cap rates down toward where the better hotels trade and the common is worth a multiple of today’s quote. Push them up, or let the fee land at the high end, and it’s a donut. The value isn’t smeared across a range so much as it sits on a switch. Another way to look at it using my probability weighting approach is solving for a probability of zero common value by goal-seeking to a percentage that matches the current market price (with no weighting to an upside case). Doing so backs into the market pricing a 75% chance of zero equity value and a 25% chance of my base case value.

Option value

I’ll say plainly what this is: a speculation, not an investment with a margin of safety underneath it. The downside is a real zero, not a figure of speech, and the going-concern language and the maturity wall mean that zero isn’t a remote tail. The reason it’s interesting at all is the asymmetry. The dollars at risk per share are small, the upside if the hotels clear at strong caps and the fee lands at the negotiated end is a genuine multiple, and the things that decide which way it breaks are few and identifiable rather than a fog of unknowables.

The swing factors come down to the cap rate the portfolio ultimately fetches, the size of the fee the advisor actually extracts, and whether the near-term mortgages get refinanced or handed back. Get a feel for those three and you’ve got the whole position. For folks who are willing to size a speculative idea small and watch it play out, AHT is worth understanding and following. I wouldn’t fault anyone for passing on it on governance grounds alone, and I’d fault no one for treating any position as money they’re prepared to lose.

DISCLOSURE: I own AHT at around a $3.10 cost basis

I write Bedrock Value as an individual investor sharing my own research and opinions. I am not a registered investment adviser, a broker-dealer, or a personal financial professional of any kind, and nothing in this piece is investment advice or a recommendation to buy, sell, or hold any security. It is published for informational and educational purposes only.

This is a speculative situation. As I say in the body, the common stock has a real and plausible path to zero, and you should treat any capital put into a name like this as money you are fully prepared to lose. Distressed equities, thinly traded small-caps, and companies operating under going-concern warnings carry risks well beyond those of ordinary stocks, up to and including total loss. This particular situation ticks all three of those important boxes.

Do your own work. Read the filings yourself, reach your own conclusions, and if you want advice tailored to your circumstances, please consult a licensed financial adviser (which, again, I am not).

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Quick Stats

• Price: $25.36 (as of 6/12/26 close)

• Market cap: ~$206M

• Shares: ~8.1M

• 52-week range: $12.50 – $36.72 (now ~31% off the high)

• Revenue (fiscal 2025, ended Jan 31, 2026): $210.9M

• FY2025 gross margin: 33%

• FY2025 net income to common: $17.0M; diluted EPS $2.09

• Q1 fiscal 2026 (ended Apr 30, 2026): net sales $50.3M (+7.5% YoY); net income to common $1.8M vs. $5.0M; diluted EPS $0.22 vs. $0.61

• Backlog: $136.5M at Apr 30, 2026, up ~12% from $121.6M at Jan 31

• Trailing P/E (on FY2025 EPS): ~12x

• One analyst covering the stock

• $75M universal shelf registration filed June 9th

A quick update before the main piece

I’d largely finished this write-up when Perma-Pipe reported its first quarter of fiscal 2026 on June 9th (the company had not previously announced when earnings would be reported). The results were not what I or the market were expecting, so it’s worth putting some commentary on the Q1 release up front rather than burying them. The quarter was certainly a miss against the trajectory the company had been on. Net sales grew just 7.5% year-over-year to $50.3M (a sharp deceleration from the 30%-plus growth of the prior several quarters) and net income attributable to common stock fell to $1.8M from $5.0M a year earlier, with diluted EPS dropping to $0.22 from $0.61. Gross margin compressed to about 29% from nearly 36% in the same quarter last year.

The company was direct about the cause in the release: geopolitical developments in the Middle East delayed the execution of certain projects, pushing out the timing of revenue recognition and profitability in the MENA region. Management was equally direct that no projects were cancelled, that customer demand remains intact, and that it still expects both revenue and net income to grow for the full fiscal year versus last year. Two other things weighed on margin that are separate from the geopolitical issue. The company pointed to start-up and ramp-up costs at the new Ohio and Qatar facilities and seasonal softness in Canada as contributing factors. Looking back, I feel a little foolish that I hadn’t been more mindful of these potential impacts hitting the Q1 results.

But there’s still plenty that keeps me interested rather than heading for the exit. Backlog continued to grow, rising about 12% to $136.5M from $121.6M at the start of the year, helped by newly awarded AI data center work in North America. In my opinion, a quarter where revenue stumbles but backlog climbs isn’t a signal that demand is drying up. The work isn’t gone, it’s just been pushed to the right for now, and the situation in the Middle East being fluid does make that timing harder to predict for modeling purposes. The market’s reaction to the miss and timing uncertainty was not pretty, the stock dropped about 20% from the previous day’s close. The rest of this piece lays out why I think the selloff is a reaction to a timing problem rather than a broken story, and I’ve revised my valuation to reflect both the softer near-term setup and the cheaper price.

Overview

Perma-Pipe engineers, fabricates, and sells specialty pre-insulated piping systems and leak detection equipment. As I understand it, they basically take steel pipe and wrap it in polyurethane foam and a high-density polyethylene outer casing. They’re custom-built to exact project specifications, so whatever customers are moving through the pipe (hot water, chilled water, crude oil, chemicals, etc.) stays at the right temperature, doesn’t leak, and doesn’t corrode the pipe from the outside. These systems go mostly underground. They’re used in district heating and cooling networks, in oil and gas gathering and transmission pipelines, in secondary containment systems for hazardous fluids, and now increasingly in the cooling infrastructure for large data centers.

It’s not a glamorous product, but it’s essential infrastructure that lasts 30 to 50 years and is nearly impossible to replace without significant disruption and cost. The buying decision is driven by specification and vendor approval rather than price alone. You can’t just call up anyone to manufacture this to job-site dimensions in an extreme environment. So while you could say it’s just pipe, it’s not exactly a commodity type business.

The company has manufacturing facilities in 14 locations across 7 countries, including significant in-country operations in the UAE, Saudi Arabia, and now Qatar. Revenue has grown from roughly $139M four years ago to $210.9M in the fiscal year that ended this past January (a compounded rate of about 11%) with growth accelerating sharply in the most recent year. EBITDA margins have expanded from single digits a few years ago to something approaching 17% more recently.

Three Things Happening at Once

I think this is an interesting stock because the company has three distinct demand drivers coming together at the same time.

The first is the Gulf Cooperation Council infrastructure build-out. Saudi Arabia’s Vision 2030 program represents something like a trillion dollars in infrastructure spending over this decade. That includes new cities, new industrial facilities, and new energy infrastructure. Perma-Pipe has been operating in the Middle East for decades and has built up in-country manufacturing in the UAE and Saudi Arabia that most competitors don’t have. In September 2025, the company received formal technical and commercial approval from Saudi Aramco to directly serve the oil and gas sector. Until that approval, Perma-Pipe’s Saudi market access was primarily limited to district heating and cooling. The company is now eligible to compete for pipeline coating contracts in what management describes as “the largest pipe coating market in the Middle East and among the largest globally.” This adds a significant new addressable market.

The first projects from this approval would have presumably been hitting the pipeline now, but now that the Q1 release signals these regional projects have been pushed back due to the Iranian conflict, the timing and revenue recognition becomes harder to nail down. Management maintained an upbeat tone on the MENA business despite the delays and uncertainties. They actually pointed to two new tailwinds emerging in the region that I hadn’t seen them reference before — investment in alternative oil and gas export infrastructure designed to route around the Strait of Hormuz and a growing push on long-term water security. Both seem like logical new paths given the disruptions and risks caused by the war, and both play directly to Perma-Pipe’s coating and pre-insulated piping capabilities. Whether those translate into awards is yet be seen but they widen the long-term opportunity set rather than narrow it.

The second driver is AI-driven data center cooling infrastructure. Since everyone is hunting for AI-related investment themes, some of this demand story is likely already priced into the stock but I think it’s still in early innings. Large-scale AI data centers require enormous cooling loads that conventional rooftop HVAC systems can’t handle. Hyperscalers are increasingly building chilled water loop systems that effectively function like miniature district cooling networks, and those systems require pre-insulated piping. Perma-Pipe recently announced a long-term lease on a new production facility in Ohio specifically to serve this market. The company had already won several data center contracts during the past fiscal year and the more recent announcements cite this segment as a significant contributor to project awards and backlog growth. I think this suggests they’re winning work now and will continue to capitalize on the momentum.

The third driver is the ongoing energy transition. Specifically, the growing role of district heating and cooling as a decarbonization mechanism. As buildings and cities try to reduce their carbon footprints, centralized energy distribution becomes more attractive. This allows the heat or cooling source to be switched from gas to geothermal to other sources without touching the distribution infrastructure. The European district heating market is enormous, regulated in favor of expansion, and undergoing significant retrofitting of aging pipe networks. Perma-Pipe is a player in that market, though Europe is not currently its primary growth driver.

Any one of these three trends would be an interesting thesis alone, but because they’re happening simultaneously, in a company that has already demonstrated operational execution over the past few years, is what makes owning the stock compelling at current prices, in my view.

Business Trends

Perma-Pipe had negative EBITDA as recently as 2021 and was barely breaking even in the years before that. The turnaround since then has been real and sustained. Gross margins have expanded from roughly 24% in fiscal 2022 to 33% prior to the MENA project slippage, driven primarily by the mix shift toward higher-margin projects and by better absorption of fixed manufacturing costs as volume scaled.

Operating income went from about $8M four years ago to roughly $26–27M in the year just ended, on revenue that grew much faster in the back half of that stretch. The operating leverage has been showing up in the financials. The new CEO, Saleh Sagr, is the former head of the MENA division who built the Middle East business that is now set to drive meaningful results. Even more than rewarding strong performance, I think his appointment is a statement of strategic priority.

The Saudi JV, formed in 2023 with Gulf Insulation Group (where Perma-Pipe contributed assets rather than cash for a 60% controlling interest), exceeded management’s expectations within its first year. The Qatar factory is under construction. The Ohio facility is under lease. And the balance sheet is in good shape, with leverage ratios generally declining and interest coverage increasing. The company also put in place a new credit facility with J.P. Morgan, which follows through on the “new banking agreement” management had been signaling. Net debt sits around $14M against an equity base of $106M, so debt levels are fairly modest.

Something to flag is that the auditor issued an adverse opinion on internal control over financial reporting for fiscal 2026. The company is in the process of remediating several material weaknesses, including segregation of duties, financial close review, and controls at certain MENA locations. They upgraded to PricewaterhouseCoopers as their auditor and are investing in the remediation. It does not call the reported financial results into question (the financial statements themselves received a clean opinion), but it is a governance risk that a potential investor should be aware of. If you’re the kind of investor who needs internal controls to be clean before you can get comfortable, I suggest putting this on a watch list instead of adding it to the portfolio right away.

How I Think About the Valuation

Going into the June 9th Q1 release, the stock traded near $31. After the miss, it sold off to a low of $24.30 and has settled now at $25.36. This puts it at roughly 12x trailing earnings on the fiscal 2025 numbers and, depending on how you treat the recently increased debt, somewhere in the neighborhood of 5–6x trailing EBITDA. The Q1 miss complicates the simple trailing earnings and LTM framing, because the most recent quarter’s $0.22 is potentially a one-time speedbump and not a number you’d want to annualize. It reflects delayed revenue and facility start-up costs, not a new run-rate. So I think the reasonable thing to do is value the business on where I think it lands a couple of years out under different scenarios, and treat the weak quarter as information about the probability of each path rather than as the new baseline. The one thing the selloff certainly did is improve the entry price. The same scenario analysis I performed before is now framed against a stock that’s nearly 20% below where it was a week ago.

What the quarter changed in my thinking was about moving the probability weighting more toward the cautious end. The delays are real, the margin pressure from the Ohio and Qatar ramps is real (but should be transitory), and “we expect it to normalize over the coming quarters” is a sentence every management team says. Counter to that, backlog grew, no projects were cancelled, and management explicitly reaffirmed full-year revenue and net income growth. So I’ve nudged my probabilities toward the bear case versus the version of this analysis I ran before initially posting, but I haven’t abandoned the structure. Here are the three scenarios, each grounded in the business drivers, and then what I make of it.

The Bear Case: GCC Cools Off, Margins Compress (~$18/share)

The bear case doesn’t require anything catastrophic really, and the first quarter of fiscal 2026 gave us a preview of what it looks like. Project delays in MENA, margin compression from facility ramp costs, and a quarter where net income falls by roughly two-thirds year-over-year pretty much defines a downside scenario. Extending that out so the delays prove stickier than management expects, GCC project awards slow against a softer oil price or budget backdrop, and the Ohio and Qatar facilities take longer than planned to reach profitable utilization would prove this scenario out and warrant another look at the overall thesis. In this scenario, full-year revenue lands roughly flat to down versus fiscal 2025, and by fiscal 2028 the business is doing around $195M at a compressed ~30% gross margin. EBITDA settles near $27M (about a 14% margin) and at 6x, on a business that has lost its growth momentum and still carries unresolved internal-controls issues, the stock is worth somewhere around $18.

The inputs that drive this scenario would include the geopolitical disruption in the Gulf persisting or worsening rather than normalizing (although on the date of posting this, we apparently have a peace deal…), oil prices sustaining at levels that slow GCC infrastructure spending, and the facility ramps continuing to drag margins. The Q1 results demonstrate that any of this is possible.

The Base Case: Steady Execution, Modest Growth (~$36/share)

The base case assumes the business sustains roughly what it’s already proven: GCC spending continues at or near current levels, the Ohio facility opens and contributes modestly to North American revenue, and the Saudi Aramco approval starts producing a handful of meaningful coating contracts in its first full year. Revenue grows to somewhere around $240M by fiscal 2028, with North America and MENA both contributing. Gross margins hold in the 32–33% range, not expanding or compressing, just sustaining the mix that’s driven the last two years of results. EBITDA lands in the high $30M range, and at 8x (I think a reasonable multiple for a small-cap industrial growing mid-to-high single digits) the equity value is roughly $36 per share.

The key assumptions here are that the Q1 delays do normalize over the coming quarters the way management says they will (which, for full-year revenue and net income to grow as they’ve guided, requires a meaningful back-half acceleration), backlog continues to convert and replenish, the one large customer doesn’t become a concentration problem, and internal controls get cleaned up before they create a material distraction. The base case is essentially “the first quarter was a timing blip, not a trend.”

The Bull Case: Saudi Aramco Ramps, Data Centers Scale (~$58/share)

The bull case doesn’t really require crazy assumptions, but it does rely on some market forces coming together that allows the company to continue to ramp profitably. The Saudi pipe coating market is described by management as the largest in the Middle East and among the largest globally. Saudi Arabia’s total pipes market is a multi-billion dollar market annually, with Aramco’s Master Gas System Phase 3 alone representing an $18 billion infrastructure program spanning thousands of kilometers of pipeline. Anti-corrosion coating on those pipelines is not optional, it is the difference between a pipeline lasting 30 years and lasting 10.

Before the September 2025 Aramco approval, Perma-Pipe had zero access to that market. Now they have the qualification. Getting onto an Aramco approved vendor list is a multi-year process involving technical audits, facility inspections, and trial projects, which Perma-Pipe just completed. The first mover advantage here is real and time-limited since competitors can pursue the same approval, but the process takes years, and every year Perma-Pipe spends delivering Aramco projects, it’s building the project history and relationships that make the next award easier to win.

In the bull case, Aramco-related coating revenue builds to $25–35M annually over fiscal 2027–2028 (possibly a conservative assumption given the scale of Aramco’s pipeline capital program) and the Ohio data center facility is running at or near capacity as hyperscaler cooling buildout continues. Adding sustained district heating and cooling volume in the GCC and Canada gets to something like $285M in revenue. If margins hold at 17–18% EBITDA (given the Aramco coating business tends to be structurally higher margin than standard district energy pipe) EBITDA is somewhere around $50M. At 9–10x, reflecting a business that has demonstrated consistent execution and cleaned up its governance, the equity value is in the mid-to-high $50s.

Putting It Together

Probability-weighted value = ~$35 per share (~38% above the current $25.36)

I’ve held the FY2028 scenario fundamentals roughly where they were, because a single soft quarter driven by project timing doesn’t change where the business lands in two to three years if the work is merely delayed rather than lost. What I’ve changed is the probability weighting, moving five points from the bull case to the bear case, to reflect that the quarter demonstrated the downside has more potential if there’s more project slippage or eventual cancellations. The scenario EVs use a roughly $14M net-debt figure as a round anchor. In reality net debt stepped up this quarter as the company drew on its facilities to fund the Ohio and Qatar buildout (long-term liabilities rose from about $31M to roughly $49M), so on a fully current basis you’d shave a couple of dollars off each per-share figure. I’ve left the round number in place rather than over-engineer a two-to-three-year-out balance sheet, but it’s worth knowing the cushion is a bit thinner than it was at year-end but still very manageable against ~$92M of equity.

At $25.36, the probability-weighted value of ~$35 sits about 38% above where the stock closed this week, a more interesting setup than the same analysis showed at above $30 before the Q1 release. The selloff on the timing-driven miss widened the gap between price and value without changing the underlying business much. The asymmetry now looks like roughly 29% downside to the bear case versus 42% to the base case and 129% to the bull.

The reason I’m still in the stock after a quarter like this is that the miss was the kind I can live with. From all angles it was driven by timing, not demand. Backlog grew, nothing was cancelled, and the two structural drivers I care most about (Saudi Aramco coating access and AI data center cooling) are intact, with the data center piece actually adding to backlog this quarter. The market has been treating this as close to a “base case only” situation, giving little credit for the Aramco optionality, and the post-release selloff to $25 and change pushed it even further in that direction, to the point where the price now sits below where my probability-weighted math says the base case alone should land. A weak quarter that sends the stock down 20% while the backlog climbs is, to me, the kind of dislocation that creates an entry point rather than the kind that signals a broken story. But the quarter raised the odds of the bear case, and a thesis that depends on management’s “it will normalize” holding true is a thesis with real execution risk attached. I’m still holding, and I actually added aggressively during the selloff. I’m watching the next one or two quarters for evidence the delays are actually clearing. The release also noted that they would be holding investor conference calls going forward for quarterly releases. I hope this accomplishes two things: that management can add more color around the growth story and its progression along with satisfying investor questions on its stall and restart, and that these calls will invite more institutional interest in the stock, which should help introduce larger money inflows to boost the price/market cap.

What I’m Watching

After this quarter, the watch list sharpens to a few specific things. First and most important being evidence that the MENA project delays are actually clearing. Management said execution should normalize “over the coming quarters” and reaffirmed full-year revenue and net income growth, but that guidance now requires a real second-half acceleration, so the next one or two earnings releases are where the story gets tested. Flat-to-soft results in Q2 would push me toward a higher weighting on the bear case. A visible reacceleration would confirm the timing, not demand, interpretation. Second, the margin trajectory as the Ohio and Qatar facilities move from start-up drag to productive utilization. Those ramp costs should fade and reverse if the facilities fill up. Third, whether Saudi Aramco coating awards start showing up in the contract releases, which remains the single biggest swing factor for the bull case and which I still haven’t seen convert to a disclosed award. And finally, the shelf. If and when a prospectus supplement gets filed, the use of proceeds language and the choice of instrument (debt versus equity) will tell us far more than the shelf itself does. Debt that terms out the existing facility borrowings is the outcome I expect and would shrug off. An equity offering at these levels is the one that would make me reassess.

On the governance front, moving to regular calls is a real step toward better disclosure, and it should help the market price the business on something closer to full information. Combined with the move to PwC as auditor and the new J.P. Morgan credit facility, the picture is of a company professionalizing its financial infrastructure.

I have a position in PPIH that I initiated and have been building over recent months. It’s sized appropriately for the conviction level and the open questions, not a top holding, but not a toe-dip either. My take is that this pullback came from a timing-driven miss rather than anything fundamental to the demand picture, which is exactly the kind of weakness I’m willing to buy into. If the next quarter shows the delays aren’t clearing, I’ll reassess rather than keep averaging down.

Disclosure: I own PPIH

As always, this is not investment advice, it’s me sharing my homework. Do your own work, especially on the internal controls issue, the customer concentration that showed up last year (one customer at about 12% of revenue and 23% of accounts receivable), the MENA project delays that just hit the first quarter numbers, and the $75M shelf registration that gives the company the ability to raise debt and/or equity down the road. The quarter that came out June 9th is a sobering data point, but a single quarter of timing-driven softness won’t make or break the thesis, what matters is whether the delays clear over the next couple of prints. The business has real risks, and I own it anyway because I think the structural drivers are intact and the upside cases are still meaningfully underpriced. That’s a judgment call, not a guarantee. Good luck.

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RCI Hospitality (RICK) is the largest publicly traded operator of adult nightclubs in the United States. They operate under brand names like Rick’s Cabaret, Tootsie’s Cabaret, and Club Onyx across 13 states, and they run a separate sports bar chain called Bombshells, which is the part of the business that’s been losing money and likely driving investors actually willing to own night clubs away. The company generated about $279 million in revenue in fiscal year 2025 and threw off $45 million in free cash flow, which is a 16% free cash flow margin. Not too bad.

The stock is trading around $25 today, down roughly 45% from its 52-week high, and the market cap sits at about $190 million. Add in the debt and you’re buying the business for around $420 million. The business earned about $62 million in normalized operating profit this year once you strip out a non-cash legal accrual. That’s a 6.8x multiple on earnings before interest and taxes. RICK is cheap, and I can understand why. But I think many of those reasons are temporary, not permanent.

The Nightclub Business

The core nightclub business is structurally unlike most consumer businesses. Revenue comes in three buckets: alcohol sales (43% of the 2025 total), service fees like cover charges, stage fees, private dances, and VIP room revenue (about 40%), and food and merchandise (about 17%). The service fee bucket has almost no direct cost associated with it. It’s close to pure margin. Combined with alcohol sold at roughly five times its cost, the blended gross margin for the nightclub segment runs around 85-90%.

A big reason this works is regulatory exclusivity. Operating an adult nightclub requires a sexually oriented business license, issued by the municipality, combined with a liquor license. The whole operation also has to comply with zoning rules that, in most established markets, were written decades ago. New clubs can’t just open next door because the zoning won’t allow it. The physical regulatory infrastructure that already exists is mostly fixed. The business competes locally (a Rick’s Cabaret in Minneapolis isn’t competing with Tootsie’s in Miami) and in most major markets, there are two to five licensed operators with little to no change in that market’s supply. That’s not a moat in the conventional sense, but it does allow for some competitive advantages.

There’s a second, structural advantage that explains a lot of the growth story: institutional investors won’t touch this sector. Not because the economics are bad, the margins prove they’re not, but because of ESG mandates, investor client pressure, and the fact that your average large PE fund doesn’t want to explain to a state pension why they own adult nightclubs. The SBA won’t even lend to these businesses. What this means in practice is that when an aging club owner in Indianapolis or Denver decides to sell after 30 years, the buyer universe is extremely thin. RCI has been buying these clubs at 4–6x earnings, and they trade publicly at 8–10x earnings, and this arbitrage runs as long as institutional money stays on the sidelines. Which, if the last 30 years are any guide, is a long time.

The Problem With Bombshells

RCI also developed a military-themed sports bar chain called Bombshells, which they built up to about 16 locations before the wheels started coming off. Same-store sales have been declining badly (20%+ negative in the most recent quarter for remaining stores) and in the past year they closed or divested five underperforming locations after taking substantial impairment charges. Bombshells is now down to 11 locations, most of them in Texas, and management has essentially said they’d like to sell the whole thing but “the market isn’t right at the moment.”

I think the Bombshells situation says something about the nightclub segment. The sports bar business doesn’t have any of the structural protection the nightclub business has. It competes directly with Twin Peaks, Hooters, and every sports bar within driving distance, with no regulatory moat, weaker margins, and no service fee revenue. It’s a “conventional” restaurant business dressed up in a different uniform, and conventional restaurant businesses are genuinely hard to run profitably. The fact that RCI couldn’t make it work despite trying for nearly a decade and despite having real operational experience in the hospitality sector is an interesting data point.

When Bombshells goes away (which I think it could and probably should), either through a sale or a wind-down, the company that’s left is a much cleaner, much higher-margin nightclub operation. That’s the version of this business worth owning. The question is whether getting there from here is worth the complexity in the meantime.

How Did We Get to $25?

The stock peaked above $90 a few years ago during the post-COVID reopening, which in retrospect was probably too expensive. The decline from there reflects a real set of problems: Bombshells underperformance, impairment charges that hit reported earnings hard even though they’re non-cash, same-store sales pressure in the nightclub segment from a combination of macro softness, a Texas patron tax that doubled to $10 per customer, and debt that has climbed to about $256 million as the company bought back a large block of shares from an activist investor at above-market prices. The CEO who built the business over 30 years recently stepped down amid bribery allegations and was replaced by an interim. This legal process has also led to filing delays… not great.

Any one of those things would be manageable. All of them at once is why the stock is at $25.

What It’s Worth

Running the numbers with reasonable assumptions creates meaningful upside potential. If nightclub same-store sales recover from –5% now to roughly flat by 2028, add two to three small acquisitions per year with about $9 million in incremental annual revenue, assume Bombshells is effectively gone from the operations by 2029, and debt slowly declines from asset sales that are already in process, I get an intrinsic value closer to $45 per share.

Here’s a breakdown of the scenarios I ran:

• Bull: same-store sales recover +2–3%; Bombshells sold for ~$25M; leverage drops below 3x by 2027 = ~$75 (25% weight)

• Base: same-store sales stabilize near flat; 2 club acquisitions/year; asset sales close; Bombshells wound down = ~$46 per share (50% weight)

• Bear: same-store sales continue declining; leverage constrains acquisitions; Bombshells requires more impairment = ~$22 per share (25% weight)

Probability-weighted, that’s about $47/share against a current price of $25, nearly 90% above the current market price.

What the market is essentially pricing in is a permanent impairment of the roll-up model, meaning that RCI can no longer acquire mostly private clubs at 5x and operate them at 8–9x in the public market, that the debt burden has gotten too heavy, and that the CEO transition has broken the sourcing engine that drove three decades of value creation. Those are valid concerns, but I think the discount makes it worth questioning if that’s too pessimistic on the outlook. I like that the company has continued to reduce share count via buybacks, increased the authorization by $20 million recently, and plan to allocate ~60% of FCF to shareholder returns. I think this capital allocation strategy helps put a floor under the current stock price.

What Would Make Me Wrong

The debt level is real and the timing is awkward. The company took on a seller-financed note at 12% interest to buy back the activist’s shares, which added expensive debt at a moment when they should be paying it down. If same-store sales stay negative and the asset sales take longer than expected, the company has less flexibility to navigate through a turnaround.

The management transition, and more importantly why it happened, creates a headwind to keep an eye on. In September 2025, Eric Langan (former CEO) and Bradley Chhay (former CFO) were indicted on 79 counts including bribery, conspiracy, and criminal tax fraud, with allegations that the company had been paying off a New York state tax auditor to reduce sales tax bills by more than $8 million over roughly 14 years. Both deny the allegations and the clubs remain open, but the indictment is what triggered their resignations in December and what caused the audit delays that are still rippling through the company's SEC filings today. Whether the legal exposure will bleed into the company's finances and operations is currently unknown.

Adding to the legal uncertainty is how the CEO change impacts the roll up strategy. Langan spent 30 years building relationships with club operators across the country. Those relationships helped RCI find out a good club was for sale before it went to anyone else. That’s not easily transferred. I’ll be watching the next acquisition announcement carefully to see whether the sourcing advantage is still in place.

And Bombshells could get worse before it gets better. The concept is challenged, and any additional impairment charges would spook investors and push the stock further down before the eventual recovery. I’d prefer if the company didn’t commit additional resources to this segment, but they may see a path to profitability that I don’t.

The Setup

This is a company that can throw off free cash flow with a genuine regulatory moat, an acquisition model that has worked for 30 years, and a collection of temporary problems that can be overcome. The stock is priced like the problems are permanent. I think most of them aren’t.

I recently bought a starter position because I like the risk/reward ratio. The filing delays are a definite overhang that hopefully resolve over the coming months as the company continues getting current (the Q1 report finally hit on May 7th, but the Q2 filing is already delayed for the same underlying reasons). But once that’s cleared and there’s line of sight to putting the legal uncertainty to rest, the setup looks more interesting. I’ll be watching the asset sales, the Bombshells resolution, and the first acquisition announcement under new leadership. Those three things, over the next two to three quarters, should provide color as to whether the base case is tracking or whether the bear case needs to increase in probability. If things trend in a positive direction, I’ll look to add to my holdings.

If you’ve got any questions on the analysis or things you think I got wrong, I’m happy to hear from you. I’m sure some of you know things about this industry I don’t.

DISCLOSURE: I own RICK

I’m not a financial advisor and this is definitely not investment advice. The indictment of the former CEO/CFO creates real risk that should be considered carefully. Do your own due diligence.

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A fragmented industry, a major competitor exit, and a CEO who has done this before

PAL — Proficient Auto Logistics, Inc.

• Price: ~$5.10

• Market Cap: ~$142M

• EV: ~$202M

• EV / 2025 Adj. EBITDA: ~5.0x

• Net Debt / EBITDA: ~1.5x

• Shares Outstanding: ~27.8M

• 52-Week Range: ~$4.91 - $10.97

When I started looking at Proficient Auto Logistics (PAL), I wasn’t expecting much upside but the setup is actually looking pretty attractive. It’s a trucking company, not very exciting. It went public at $15 a share in May 2024 and has since drifted down to about a third of that, including a recent 52-week low, and the GAAP financials show back-to-back operating losses. None of that is a great pitch. But there are a few things I liked that kept me from moving on. Most interesting to me is that the company’s CEO spent 14 years running one of the best-performing carriers in the trucking industry and built an operating playbook that looks a lot like what he’s trying to do here. A major competitor also just went out of business practically overnight, handing the surviving carriers a meaningful volume opportunity. At today’s price, the market is giving the company essentially no credit for what the company could become.

What PAL Does

The business is pretty simple. I could understand it without having to Google a dozen acronyms and spending hours jumping through Wikipedia links. Basically, PAL moves finished vehicles. These are cars and trucks that just rolled off an assembly line, came off a ship at a port, or arrived at a rail yard and delivers them to dealerships across the country. The company doesn’t manufacture anything, doesn’t touch parts logistics, and doesn’t store inventory. It hauls cars on specialized car carrier trailers from point A to point B, charging customers based on vehicle size, weight, and mileage. About 90% of its customers are the big automotive OEMs like Ford, GM, and Toyota with the remainder being rental companies, dealers, and auction houses. PAL has about 1,150 trucks and trailers, operates out of 57 terminals spread across the country, and moved roughly 2.3 million vehicles last year.

The company runs two operating modes in parallel. Its dedicated company-driver fleet, which accounts for about a third of revenue, handles the most predictable OEM contract lanes where reliability matters most. The other two-thirds comes from a network of independent carrier relationships, where PAL uses outside capacity for less critical or spot market volume. That mix gives it some flexibility to scale without a huge fixed cost commitment, though the independent carrier side comes with more variability on pricing and quality.

Auto hauling sounds simple but turns out to be genuinely complicated to operate at scale. Drivers need a specific commercial license for car hauling, the equipment is purpose built and can’t be redeployed for other freight, OEMs have strict compliance and safety requirements before they’ll let a carrier touch their vehicles, and a national OEM contract requires a geographic footprint that most regional operators simply don’t have. All of that creates real friction for smaller operators, which is exactly why the industry has stayed fragmented for so long. It’s also why a company willing to consolidate it develops an advantage that’s hard to replicate from scratch.

PAL Network & Operating Subsidiaries:

The Jack Cooper Story

In February 2025, Jack Cooper Transport shut down. Jack Cooper wasn’t some struggling, fly-by-night regional shop. It was a 97-year-old company that had won GM’s “Supplier of the Year” award three times in the last 15 years, and until very recently, ranked as the second-largest auto hauler in North America. Its sudden collapse came when Ford invoked a 30-day termination clause in its contract in early January, and when GM followed shortly after, Jack Cooper’s management team made the call to close the doors permanently, putting roughly 2,500 people out of work.

The factors leading up to the exit give some important insights into how this industry works. Jack Cooper had gone through a prior bankruptcy, carried what appeared to be a heavier fixed-cost structure tied to its fully unionized workforce, and had tried to diversify out of auto hauling in the years prior. Most notably was its failed attempt to acquire Yellow Freight’s LTL assets out of bankruptcy in 2023. Whether that strategic detour contributed to Ford and GM’s decision to re-examine the relationship, or whether this was purely a contract negotiation that went sideways, isn’t fully clear from the outside. What is clear is that the OEMs demonstrated they’ll fire a century-old carrier on 30-day notice if the relationship isn’t working. That’s the kind of customer concentration risk that deserves real skepticism before investing in any vehicle transportation company. I’ll come back to it.

For the surviving carriers, the disruption created an immediate opportunity. Jack Cooper had held something in the range of 15% of the North American auto hauling market. That capacity and those contract relationships didn’t disappear, they got redistributed. PAL had been investing in its network and fleet heading into the event, and by Q1 2025, management had already locked in roughly $60 million in new annual contracts as a direct result of the Jack Cooper exit, representing about 15% of PAL’s prior-year revenue run rate. Those contracts continue to be onboarded through 2025 and into 2026.

PAL & Competitors, w/ Jack Cooper Exit Highlighted:

The CEO and the Playbook

To me, the most interesting thing about PAL is the management team and particularly the CEO’s track record. Rick O’Dell, PAL’s chairman and CEO, spent nearly 14 years running Saia, a publicly traded less-than-truckload carrier based in the Southeast. When O’Dell took over as CEO in the early 2000s, Saia was a regional carrier with an operating ratio (the percentage of revenue consumed by operating expenses, so lower is better) hovering in the high 90s and a cost structure that reflected years of operating as a subscale competitor. By the time he left, Saia was a genuine national competitor operating consistently in the low 90s, and the stock had compounded meaningfully as the market repriced the business to reflect the structural improvement in margins.

What he’s attempting at PAL is no different. The auto hauling industry is fragmented, runs on thin margins, and lacks a national-scale operator that can drive meaningful efficiency gains. O’Dell assembled five founding companies into PAL ahead of the IPO, added two more tuck-in acquisitions in 2024 and 2025, and is using a combination of shared technology, route optimization, and what the company calls “sister hauls”, where a driver returning toward his home terminal picks up a load going in the same direction rather than running empty, to extract efficiency from the combined network that no standalone regional carrier could replicate. Sister hauls were running at about 11% of revenue by mid-2025 and growing, which I think is strong signal that the network is beginning to work the way it’s supposed to.

The operating ratio trajectory reflects early-stage integration rather than a finished product. PAL ran at a 92% operating ratio on a combined pre-IPO basis when market conditions were normal, deteriorated to the high 90s during 2024 and early 2025 as a soft automotive market hit volumes, and roll-up integration costs impacted profitability. Since then, it’s been heading in the right direction, reaching 96.3% in Q3 2025 before a fuel cost spike in Q1 2026 temporarily reversed the trend. Management has been explicit that the target is somewhere around 95%, which at PAL’s current revenue base would translate to roughly $60-65 million in adjusted EBITDA versus the $40 million reported for 2025. Each percentage point of improvement from here is worth about $4 million in EBITDA, which is real money relative to a $142 million market cap.

It would be incomplete to talk about O’Dell’s track record without mentioning that he owns nearly 940,000 shares of PAL. He bought 54,000 of them in the open market in November 2024 at around $9.20, which is about 80% above today’s price, and the rest has come through RSU vesting that’s continued into 2026. There was a small tax-withholding sale in mid-May at around $5 that will show up in any Form 4 scan, but it accompanied his total stake growing by roughly a quarter over the past 18 months as more shares vested. I’d like to see him buy more in the open market at these prices, but it’s nice to know he’s got real skin in the game regardless.

On top of his ownership, the buyback announcement signals conviction in the company’s direction and suggests the market price is below the board’s view of intrinsic value. The board authorized PAL’s first share repurchase program in March 2026 for up to $15 million, and the company executed roughly 83,000 shares in Q1 at an average of just over $6. The stock has since traded down to $5.10, which means the remaining authorization sits there to be deployed at prices about 20% below where the company was buying just weeks ago. Whatever internal estimate of fair value the board and management were working with when they approved the program and started buying, it was meaningfully above current levels. None of this is a guarantee of anything, but a management team putting their own money in personally and then deploying corporate capital to buy back stock at prices above where the stock currently trades is the kind of thing I like to see.

Management Team Overview:

What Is It Worth

There’s quite a bit of noise in the financials because purchase accounting mechanics from prior acquisitions (7 in total) create depreciation step-ups, intangible amortization charges, and led to a $27.8 million goodwill impairment in Q4 2025. While the goodwill impairment isn’t a glowing positive for the roll-up strategy execution, these accounting treatments don’t impact the underlying cash economics of the business. Once those items are stripped out, PAL generated roughly $40 million in adjusted EBITDA on about $430 million of revenue in 2025, a 9% margin that I think is below mid-cycle given the soft automotive market for most of the year and integration costs still running through the system.

The key value driver is the operating ratio. If operating ratio improvement stalls and PAL never gets below about 97%, the business is worth somewhere in the mid-single digits per share, which seems to be the market’s current implied view. If the integration delivers 95% operating ratios on a gradually growing revenue base through additional tuck-in acquisitions and the Jack Cooper volume rolling fully in, normalized EBITDA gets into the $60-65 million range by 2027-2028. At a 7-8x multiple, still a discount to where comparable carriers have traded historically, the stock could move into the low-to-mid teens. If O’Dell actually replicates his Saia playbook and the operating ratio reaches the low 90s over time while revenue scales through continued acquisitions, the upside from here is multiples of the current price.

My rough valuation scenarios*:

• Bear = ~$430M revenue; 7-8% EBITDA margin & EBITDA of ~$33M; 5x EV multiple = ~$3.25 per share

• Base = ~$580M revenue; 11-12% EBITDA margin & EBITDA of ~$65M; 7x EV multiple = ~$9.15 per share

• Bull = ~$780M revenue; 13-14% EBITDA margin & EBITDA of ~$105M; 8x EV multiple = ~$25+ per share

*After subtracting ~$60M net debt and dividing by ~27.8M diluted shares.

Note: EV multiples benchmarked against Saia, Heartland Express, and Universal Truckload, which is a small and imperfect peer group. Bear multiple reflects low confidence in growth/margins given execution risk. Base and bull reflect partial and full execution credit, respectively.

A weighted-average of the three scenarios at 30/40/30 odds on bear/base/bull gets to roughly $12 per share, or about 135% above where PAL is trading today.

The Risks

The concentration in a handful of OEM customers is the primary risk to the valuation estimates, and the Jack Cooper story highlights this potential. PAL’s largest single customer represents about 29% of revenue, and the top five together are nearly 60%. Ford and GM demonstrated in February 2025 that they will exercise contract termination clauses on 30-day notice even against a supplier with a century of history and multiple supplier-of-the-year awards. Any deterioration in PAL’s service quality, or any shift in how OEMs want to manage their logistics networks, is a real existential business risk that’s hard to predict. PAL is working to diversify by adding EV manufacturers, rental companies, and auction business, and the wins of prior Jack Cooper contracts reflect some progress there, but customer concentration at this scale isn’t easily mitigated.

The broader automotive market matters too. Tariff-driven production cuts, combined with a consumer that pulls back on big-ticket purchases, could send vehicle volumes meaningfully lower and with them PAL’s ability to cover fixed costs, slowing or reversing the operating ratio improvement story. The company managed its way through a soft 2024 and 2025 without a balance sheet crisis (leverage is a modest 1.5x and debt is actively being paid down) but it’s not immune to a real industry downturn.

Finally, seven acquisitions in two years is a lot to integrate, and PAL disclosed a material weakness in its internal controls tied to IT and reporting processes that it’s still remediating. Management has said all seven operating businesses are now running on a unified technology platform, which is the precondition for most of the efficiency gains they’re projecting. If that integration creates more friction than it resolves, or if tuck-in acquisitions are made at prices that don’t justify the execution burden, the roll-up story is harder to defend.

The Setup

At today’s price, down 66% from the IPO and at fresh 52-week lows, the market is implying something close to zero execution credit: an operating ratio that doesn’t improve and a management team whose track record at a prior company was one-off and won’t translate here. That could be right. Integration is hard, OEM customers are difficult, and the industry has thin margins for a reason. But O’Dell and his team built a national platform in about 18 months, used the Jack Cooper crisis to demonstrate the value of that platform by absorbing new contracts quickly, are paying down debt faster than they’re spending on equipment, and buying back their own stock at prices below what O’Dell paid personally. The Saia comparison isn’t guaranteed to play out, but it’s not an accident that he’s here either.

I’m treating this as a thesis that plays out over 2-4 years and will add on pullbacks if the story stays intact. The things I’ll be watching most closely are the quarterly operating ratio, specifically whether the trend that started in Q3 2025 continues as the fuel cost spike normalizes, and management’s commentary on new contract wins and pricing, which will tell whether the Jack Cooper volume is being absorbed at economics that actually support the EBITDA bridge I’ve outlined above.

DISCLOSURE: I own PAL.

As always, do your own homework. I’ve tried to lay out my logic, but I could be wrong, and at $142 million in market cap with thin average daily trading volume, this is not a stock where the whole world is going to pile in behind you even if things go right. I’m not a financial advisor.

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Western Union (NYSE: WU) — ~14% normalized FCF yield, 10% dividend, $22 base case vs. $9 market price

• Price: ~$9 (down today on Mamdani news)

• Market cap: ~$2.9B

• EV: ~$4.6B (pre-Intermex close)

• EV/EBITDA: ~5x

• Normalized FCF yield (enterprise): ~14%

• Dividend yield: ~10%

• FY2025 revenue: ~$4.1B

• FY2025 adjusted operating margin: ~20%

Western Union has been around since 1851. It wired soldiers their pay through two world wars and became the default infrastructure for hundreds of millions of migrant workers sending money home. In some communities, “sending a Western Union” is still the verb, not the company name.

Today the stock trades below $9, or roughly 5x EBITDA and about 6x what I think the business actually generates in normalized free cash flow. The market has concluded this is a terminal decline story, the competitive moat is gone, and the only debate is how fast the cash dries up.

I think that’s at least partly right on the direction and significantly wrong on the magnitude, and the gap between where the stock is and what I think it’s worth is wide enough to be worth laying out carefully.

Three things specifically caught my attention here. The normalized cash generation is materially higher than the reported figures suggest, and understanding why matters for every assumption in the model. The part of the business most at risk from digital competition has a structural protection that digital-native competitors cannot replicate on any reasonable timeline. And the current stock price implies a permanent collapse in earnings that has no historical precedent in this business, even through COVID.

The Business

WU’s core business model is simple: a migrant worker in Texas sends $300 home to family in Mexico, WU charges a transaction fee plus a foreign exchange spread, pays the retail agent a commission running roughly 40 cents on the revenue dollar, and keeps the difference after technology and overhead. That’s 90% of the business, spread across five geographic regions, with about 300 million transactions a year.

The part worth paying most attention to is probably the receive side. WU has 500,000 agent payout locations across 200 countries and territories. Remitly, the best-capitalized digital challenger in WU’s key corridors, has spent more than a decade building its own receive network and assembled about 140,000 partner payout locations, still 3.5x fewer. Wise, which I think is the more strategically interesting competitor, has zero cash payout locations. It’s bank-to-bank only.

That gap matters because a significant share of WU’s customers are sending money to people without bank accounts, or to places where mobile wallets haven’t penetrated deeply enough to be reliable. The receive-side network is the structural floor under this business, and it’s not something a digital competitor closes with a software update or even a decade of aggressive capital spending (Remitly proves that point).

The other 10% of revenue is a mix of retail foreign exchange, money orders, bill pay, and other newly launched ventures. Consumer Services, as WU calls this segment, has grown at double-digit rates for three straight years and now represents about 10% of total revenue, up from roughly 5% four years ago. Not big enough to move the needle on its own yet, but real growth layered on top of the core.

What the Market Is Looking At

The bear case isn’t invented. Revenue has declined three years running. The fastest-growing part of the business — Branded Digital, WU’s own app and website — is growing transaction volume at 13-14% annually but revenue at only 7-8%, because digital senders are more price-aware and the mix within digital is shifting toward account payouts, which earn less per transfer than cash pickup. The business is processing more transfers and earning less per dollar moved. That’s a real structural headwind, not something to be ignored.

There’s also an admission from a late-2025 investor conference that explains a lot of the past decade. An executive told the room: “We historically were worried about channel conflict. We were historically worried about marketing to our own customers. Our competitors would market to our retail customers all day long... because we were afraid to do it.”

Basically, WU held back from promoting its own digital product because doing so might cannibalize the retail agents whose payout network is the foundation of the competitive position. Remitly and Wise spent heavily on digital customer acquisition for years while WU sat on its hands, protecting a channel that was slowly losing customers to those same competitors anyway. The result is a generation of younger migrant senders who open a Remitly account first and think of WU as the backup option. That’s a real problem, and it doesn’t resolve in a quarter or two.

What the Business Actually Earns

Before getting to valuation, the reported financial figures need some adjustment because recent cash flow numbers potentially overstate the decline.

WU paid roughly $230 million in one-time tax settlements tied to IRS proceedings from the 2017 Tax Act, payments that hit reported operating cash flow across recent years. Strip those out and the business generated something close to $670 million in normalized free cash flow in fiscal 2025. Against an enterprise value of roughly $4.6 billion at today’s price, that’s a 14-15% yield on the enterprise.

The balance sheet can also read a bit confusing. There’s roughly $3.5 billion in “settlement assets”, which are regulatory-required funds that flow in and out of the business and are matched nearly dollar-for-dollar by settlement obligations. They’re a pass-through, not economic capital. Strip those out and WU’s operating business runs on limited tangible assets (net property, plant, and equipment of less than $100 million on $4 billion in revenue). The $2.9 billion in gross debt is real, but interest coverage is above 5x and the annual dividend of roughly $305 million runs at about 45% of normalized free cash flow. It’s covered comfortably, in my view.

What I Think It’s Worth

I built an 8-year forecast anchored to roughly 1% annual revenue decline in the medium term, after a near-term boost from the Intermex acquisition, which is expected to close this summer. WU is paying $500 million in cash, or about 3.9x EBITDA, for a US-Latin America retail remittance specialist with around $660 million in revenue. That’s a reasonable price for a profitable, cash-generating business in the same corridors where WU has been losing retail share. If the $30 million in guided synergies materialize within two years, the deal adds value. If integration runs longer or retail declines accelerate, 2026 could disappoint before the math improves.

On the base case assumptions, I estimate 20% operating margins, an 8% discount rate (WACC), and a terminal assumption that the cash corridor business finds a floor at modest nominal growth rather than collapsing. Using these inputs, the enterprise value comes out around $9.2 billion and equity value to roughly $22 per share.

Here’s how I’m thinking about the range of outcomes:

• Bull: Digital retention succeeds; Intermex synergies hit; Consumer Services scales = ~$40/share (30% weighting)

• Base: Revenue declines ~1%/yr in medium term; margins hold; cash corridor moat erodes slowly = ~$22/share (40% weighting)

• Bear: Immigration enforcement reduces US volumes; mobile wallet substitution accelerates; Intermex disappoints = ~$11/share (30% weighting)

• Weighted average = ~$23

Working backward from today’s price: to justify ~$9 a share at an 8% discount rate, the market needs to believe WU’s cash generation declines permanently at something like 6-7% per year forever. That’s not modest secular decline, it’s rapid structural collapse, and there’s no period in WU’s history where earnings declined at that rate. The market is pricing an outcome worse than my bear case, which is what makes this interesting as a value play: investors can just wait for the business to not collapse while the stock gradually re-rates as pessimism eases.

The immigration policy risk is the one I take most seriously and have the least ability to size. The United States is WU’s largest sending market, and a sustained reduction in the legal migrant worker population reduces volumes in the highest-margin corridors. This is a dynamic and ongoing policy issue, and it’s most of what’s behind the 30% bear case weight.

Mobile wallet substitution is the slower-moving structural threat. The reason the cash payout network holds up today is that enough recipients in key receiving markets still need cash. India has UPI, the Philippines has GCash, Mexico has CoDi, and as these platforms reach rural areas over time, the argument for WU weakens at the margin. I think this plays out over 7-15 years, not 2-3, but it’s real and it’s why I’m not framing this as a wide moat or a forever hold.

About Today’s News

The stock is down today because NYC Mayor Zohran Mamdani is reportedly pushing New York’s state financial regulator (the Department of Financial Services, or NYDFS) to block the Intermex acquisition on the grounds that it’ll lead to higher fees for migrant workers. It’s worth understanding what he can and can’t actually do here, because the market’s reaction looks like it’s treating this as more consequential than it probably is.

First, the federal piece is settled. The DOJ and FTC had their mandatory review window under Hart-Scott-Rodino antitrust law, cleared the deal in October 2025, and moved on. For federal authorities to block this now, the DOJ would need to file a lawsuit in federal court arguing the deal substantially lessens competition. That’s a high bar that they already implicitly declined to pursue. That door is effectively closed in my opinion.

What Mamdani is trying to motivate into action is the NYDFS, which does have real authority over money transmitter mergers in New York. NYDFS can approve, deny, or attach conditions to a change of control application. The problem with Mamdani’s argument is that NYDFS’s mandate covers financial soundness, consumer protection in a stability sense, and anti-money laundering compliance. This mandate does not cover competitive market structure arguments about whether combined fees will rise. That’s antitrust territory, and the antitrust reviewers already answered the question. An NYDFS denial on pricing grounds would be new and almost certainly challenged in court.

The other thing worth noting: Mamdani is the mayor of New York City. NYDFS is a New York State agency that reports to Governor Hochul, not to City Hall. He has no authority over the superintendent of DFS. He can write letters and hold press conferences, which is what he appears to be doing. He is a politician so I suppose that should be expected.

The deal also has more runway than some headlines might suggest. The original May 11 date has now passed, but the merger agreement includes an automatic extension to August 10 that kicks in precisely because a money transmitter approval is still pending, with a further extension to November 10 if needed. Both parties planned for state regulatory drag when they wrote the contract.

If the deal somehow dies anyway (I’d put that probability somewhere around 5-10%) WU keeps $500 million in cash and loses roughly $0.10 in guided EPS accretion for 2027. The standalone normalized free cash flow I’ve outlined above exists entirely independent of Intermex. A deal block is not good news, but it doesn’t kill the thesis either. Based on today’s price action, the market is selling down a business generating $600+ million in normalized annual cash flow because a city mayor wrote a letter to a state regulator he doesn’t control.

Bottom Line

At roughly $9 (today’s close was $8.44), WU is priced like the business is in freefall. The picture underneath is a receive-side payout network that digital competitors cannot replicate in any reasonable timeframe, normalized free cash generation approaching $700 million, a 10% dividend covered well within that, and a stock at 5x EBITDA, which looks a lot more like a deeply out-of-favor, slow-decline business than an imminent zero. The bear case is already in the stock. A base case that’s meaningfully better than catastrophic gets you to around $22/share.

DISCLOSURE: I own WU.

What I’m watching as the story plays out:

• Branded Digital revenue yield per transaction: if the gap between volume growth and revenue growth keeps widening, the digital strategy might not be working.

• North American retail transaction counts: the stabilization thesis needs this not to keep deteriorating.

• Whether the Intermex deal closes on time or drags into Q3.

• The dividend through 2026, which is likely the clearest real-time signal on whether the normalized free cash flow picture holds up.

This is not investment advice. Do your own work.

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