We came across a bullish thesis on Acacia Research Corporation (ACTG) on Value Degen’s Substack’s by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on ACTG. Acacia Research Corporation (ACTG)’s share was trading at $4.59 as of Nov 1st. ACTG’s trailing P/E was 6.12 according to Yahoo Finance.
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Acacia Research Group (ACTG) offers an enticing opportunity as a publicly traded, value-focused acquirer operating much like a private equity firm, but at a deep discount. With a market cap nearly matching its $449 million in net current assets, ACTG trades close to tangible book value, creating a compelling investment backdrop. The company has three primary business segments and recently added a fourth with the leveraged buyout of Deflecto, a manufacturer of mundane but potentially lucrative products like chair mats and dryer venting. This $103 million acquisition, partly financed by a non-recourse loan to ACTG, should contribute significant revenue, adding Deflecto’s $130 million in annual sales to ACTG’s trailing $110 million. The acquisition demonstrates ACTG’s disciplined approach to leveraged deals, especially since consumer durable revenues may normalize above 2023 levels, enhancing future cash flow.
Beyond Deflecto, ACTG’s portfolio includes Printronix, a printing solutions company acquired at a reasonable 3.6x adjusted 2021 EBITDA, and Benchmark Energy, an Anadarko Basin oil producer with low-decline assets generating a steady cash flow. With energy prices often volatile, ACTG’s hedging strategy ensures production stability, making it an attractive low-risk exposure in the oil and gas sector. The company’s fourth and possibly most distinctive segment is its intellectual property business, where ACTG engages in patent licensing and litigation, sometimes drawing criticism as a “patent troll.” Despite the controversial nature, this business has produced high-margin, uncorrelated income, including a notable $75 million win in 2023. As ACTG scales, consistent litigation revenue could make the company more valuable over time, balancing its lumpy income stream.
Strategically, ACTG benefits from its 61% ownership by Starboard Value LP, a highly successful activist fund with a strong track record, which adds credibility to ACTG’s acquisitions. Starboard took control after prior mismanagement issues, replaced the management team, and infused the company with cash for future acquisitions, focusing on sectors like technology, energy, and industrials. Deflecto’s 100 patents might further synergize with ACTG’s IP business, creating potential for additional monetization.
ACTG is currently trading at around 0.83x price to tangible book value, with $6.07 of tangible book value per share. With a large cash reserve, plans for share buybacks, and room for strategic acquisitions, ACTG is well-positioned for growth. Given its attractive valuation and underappreciated assets, ACTG presents an intriguing opportunity, especially for those seeking to capitalize on inefficiencies in small-cap, value-oriented investments.
Acacia Research Corporation (ACTG) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 13 hedge fund portfolios held ACTG at the end of the second quarter which was 13 in the previous quarter. While we acknowledge the risk and potential of ACTG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ACTG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.