Billionaire Einhorn’s Most Undervalued Stock

David Einhorn is the billionaire money manager who founded Greenlight Capital, an asset manager that produced a 16.5% annualized return from 1996 to 2016 and cemented his legacy as one of the top fund managers of our era.

In his $1.7 billion fund, Einhorn has a host of stocks that appear to be substantially undervalued but one tops his list as the most undervalued, Danimer Scientific.

What is it that Einhorn and his investment team see in this stock that could merit its position?

Key Points

• Danimer Scientific has poor cash flows and growth, weak gross margins and poor profitability.
• The reasons to buy the stock seem to be few and far between, which explains why the share price has fallen dramatically.
• On one key metrics, Danimer is a strong buy and that’s likely what has intrigued David Einhorn.

The Bad & Ugly of Danimer Scientific

At first glance, Danimer Scientific is a strange bet for any investor to get excited about. The share price has largely been in a downtrend for a prolonged period of time. Revenue growth has materially slowed and the company missed analysts’ expectations for bottom line results.

Now let’s throw the kitchen sink of other issues at you. Danimer also suffers from weak gross margins and operates with a significant debt burden. Adding to the woes is the fact that analysts don’t expect it to be profitable this year, a continuation of the lack of profitability reported over the past year.

With momentum, cash flows and growth all receiving a poor grade, why has this stock piqued Einhorn’s interest?

Why Buy Danimer Scientific?

If you haven’t been scared away by Danimer already, you’re probably wondering what could possibly have attracted David Einhorn and his team to purchase the stock?

The answer may lie simply in the valuation relative to the price. While the price is close to $0.65 per share, the consensus among analysts is that fair value lies at $2.65 per share, a ballpark 350% increase from present levels.

It’s worth highlighting that while the upside is massive, if realized, Einhorn only has 0.3% of his portfolio in it. That still amounts to many millions of dollars but relative to his portfolio size, he too doesn’t have so much conviction that he’s willing to bet the farm on the stock – as say Buffett did with Apple by pouring 50% of Berkshire Hathaway’s equity portfolio into it.

Time To Buy?

If ever there were a time to buy, it’s when the share price has fallen materially lower and the valuation seems compelling. But perhaps it’s best to treat Danimer much like a call option. If the potential is fully realized, it could be a huge winner, which is likely how Einhorn views it. If it falls to zero, the percentage allocation to the position is low and so the loss won’t be felt hugely.

And unlike a call option, this cheap stock doesn’t have a theta decay eroding its value daily, though it could be said the fundamentals have done a good job doing that already!