In June my article on Avalon Holdings (AWX) got published on SeekingAlpha.com. I wanted to add my reply to the comments that were made on that article on Sportgamma.net:
P1: Golf isn’t really a business for AWX. It’s a very capital intensive ego trip for Klingle.
The golf segment has not been profitable for AWX, true. Running a golf course is capital intensive (you need a lot of land and there is high maintenance, although membership fees being paid in advance might counter the ‘intensity’), true.
AWX has been investing in building improvements and equipment purchases. That, as well as missing membership targets has had negative effect on the golf segments bottom line.
From an asset point of view, primarily the Avalon Course seems to be a valuable and sensible asset. For example, it is ranked nr. 33 by Golf Digest in its Greatest public courses index by price. Just because it hasn’t been profitable yet, does not necessarily imply that the investment in the golf segment doesn’t make economic sense.
P2: Klingle is morally bankrupt are why the shares trade, and will continue to trade, at such a discount.
As this proposition is not refutable, it is hard to respond to it. The fact that Klingle has a hate-site – run by a Dr. Nalluri, major owner of AWX stock – dedicated to him does support your argument. But even so, Dr. Nalluri has been a net buyer of the stock according to recent 13D filings. The supposed moral bankruptcy of Klingle should actually be of less relevance since he has stepped down as CEO, one might even assume.
P3: If this company had any real value or future, you’d think that they’d already have been gobbled up.
This proposition refers to market efficiency. It implies that in an efficient market, if AWX was more valuable than the market cap indicates that it would have been acquired by a bigger entity already. If this proposition holds, it would be applicable to any market. There wouldn’t really be any reason to invest in stocks in the first place as all opportunities have already been taken.
The real reason why AWX hasn’t been gobbled up, as it says in the article, is because Klingle is in total control. To gain control of the company, he would have to be bought out.
P4: a company of their size, with decreasing….well, everything…. isn’t about to be the aggressor in any M&A activity.
This proposition refers to scalability. AWX is the smallest publicly traded waste management company (by far) that I could find. But, there are smaller private and municipal waste management operations currently operating within AWX´s geographical market. I’m not saying it should, just that it could.