Editor’s note: This article was first published in July 2014; the Carbures share price, the Black Bird and BBVA price targets and the company’s revenue plans are figures from that month. Carbures’ share price later fell sharply, and the company has since been renamed Airtificial. In July 2014 Gowex’s chairman, Jenaro García, admitted that the company’s accounts had been falsified for years, and the company went into insolvency.
Gisela Turazzini and her partner Marc Ribes, of Black Bird, have set their sights on Carbures, a company listed on Spain’s alternative stock market (the MAB), releasing a report that is proving devastating for a company whose shares rose as much as 1,800% in a bull run that took them from their initial €1.30 to around €40.
Black Bird is not saying this company is a scam like Gowex. In fact, in a head-to-head with Juan Juárez on Intereconomía, Black Bird acknowledged that Carbures is a great company, but that does not mean its share price is justified, given how very ambitious its forecasts are.
What Black Bird is getting at (and I don’t understand why it is drawing so much criticism) is that we can look at Carbures from the point of view of speculation or from the point of view of investment. As Warren Buffett himself put it, you can invest in a great company and make a terrible investment, and you can invest in a mediocre company and make a great investment, because in the end it all depends on what you pay for what you buy. With Carbures, if you pay €40 a share, you are more than pricing in its ambitious plan.
Watch: Black Bird’s report on Carbures
In the interview, Marc Ribes said he would not pay more than €10 for Carbures shares, putting a target price of €6.51 on them today, which he might raise as the company grows its revenue and delivers on its ambitious plan. Remember that Carbures plans to go from €71 million in revenue to €553 million in 2016, which in a way could sound crazy. Ribes’s valuation is far below the €41 target price set by BBVA.
But there is more. If Carbures did manage to hit that target, what should investors who bought at €40 a share, when the company was turning over €71 million, expect if it delivers on its ambitious plans? For Carbures to trade at 80, 120 or 200 euros? That would be outrageous, to say the least.
Turazzini hits the nail on the head when she says that investing in the MAB looks more like a betting shop than a place where companies raise funding. As we said in our explanation of the MAB and its biggest risks, the companies listed on the MAB are not yet big companies but projects for big companies, caught at that key, high-risk moment in a business’s life.
One comment from Juan Juárez is worth highlighting, probably made without much thought, when he talked about the MAB’s volatility: “perhaps this market, with its current volatility, is not meant for small investors”. But let’s stick to the main idea: we already know Carbures is a great company, but… is this a good entry price, or are we buying above its real value and taking on an enormous risk? One thing is clear: at current prices, we have lost the margin of safety.
See also: 18 truths about investing that many people find hard to swallow
Featured image: Carbures, CC BY-SA 2.0, via Flickr.
