November 5, 2023 - AJX
The Hidden Signal in Great Ajax's Financials That Wall Street is Missing
Great Ajax Corp (AJX), the mortgage REIT specializing in re-performing and non-performing loans, has had a tumultuous year. A quick glance at their recent financial data might lead you to believe it's a company in distress. Earnings per share (EPS) for the year ending December 31, 2023, came in at a dismal -1.96, painting a bleak picture for investors. But what if I told you there's a hidden signal within these seemingly negative numbers, a signal pointing towards a potential turnaround that Wall Street seems to be overlooking?
My analysis of Great Ajax's financials, particularly the cash flow statement, reveals a compelling trend: despite the negative EPS, the company has significantly increased its cash position over the past year. Ending the year with $52.83 million in cash, a $4.99 million increase from the previous year-end, suggests a deliberate strategy at play. This increase in cash reserves comes despite substantial dividend payouts - $20.59 million in 2023 - demonstrating the company's ability to generate cash even in a challenging environment.
This strategic cash accumulation could be interpreted as a sign that Great Ajax is preparing for something big. While the exact nature of their plans remains unclear, several possibilities emerge. One hypothesis is that the company is positioning itself for a significant acquisition. With a war chest of readily available cash, Great Ajax could acquire distressed assets at attractive prices, capitalizing on market dislocations and potentially boosting future earnings.
Another possibility is that Great Ajax is preparing to repurchase its own shares. With the stock currently trading at a price-to-book ratio of 0.5042, significantly below its historical average, a share buyback could be an effective way to unlock shareholder value. Repurchasing shares at a discount would not only increase EPS but also demonstrate management's confidence in the company's long-term prospects.
Strategic Cash Accumulation: Preparing for a Big Move?
The question remains, why is Wall Street missing this signal? It's possible they're fixated on the negative EPS, failing to delve deeper into the cash flow dynamics. Or perhaps they're underestimating Great Ajax's management team, led by CEO Lawrence Mendelsohn, a seasoned veteran in the mortgage industry. Mendelsohn, known for his shrewd investment decisions during previous market cycles, might be setting the stage for a strategic move that could significantly alter Great Ajax's trajectory.
Cash Flow Dynamics: A Signal Overlooked?
This brings us to a crucial fun fact about Great Ajax: they've issued an impressive number of dividends by year, consistently rewarding shareholders even during challenging periods. This speaks volumes about the company's commitment to shareholder returns and its ability to navigate market fluctuations.
