1. Ignore the P/E on an early-stage turnaround — read the quirk, then value the cash ramp
The repeatable method
- When a company is crawling back from operating losses to profitability, distrust any headline P/E: near-term earnings (the denominator) are a tiny number close to zero, so a normal price divided by it produces an artificially sky-high multiple that says nothing about value.
- Switch the lens to free cash flow on the guided multi-year ramp. Convert the out-year FCF to per-share (FCF ÷ share count, remembering any dilution from a rescue capital raise), and check it against enterprise value (market cap plus net debt), not just market cap.
- Apply a quality-of-business multiple to the out-year FCF (e.g. 20-25× for a durable duopoly), then discount it back and haircut for execution risk. The gap between that and today's price is the real upside — and it only exists if the ramp lands on schedule.
Here: BA trades ~$220 at a trailing P/E "north of 100," which Hay calls "a mathematical quirk… pretty useless." He instead values the guided ramp — $1-3B (2026) → ~$6.8B (2027) → ~$10.5B (2028), ≈ $13-14/share of 2028 FCF on ~760M shares (swollen by the 2024 raise), ~6% forward yield — and puts a 20-25× "quality-duopoly" multiple on it → ~$275-345, haircut to "fair-to-modestly-undervalued at ~$230."
Watch for
- A share count inflated by an emergency raise (dilutes per-share cash), heavy net debt that pushes EV well above market cap, and a suspended dividend / no buybacks — all signs the cash isn't yours yet. Verify each ramp milestone actually prints before crediting the out-year number.
2. Demote a working thesis to Hold when the upside is priced and the near-term risk stack thickens
The repeatable method
- Separate "is the thesis intact?" from "should I add here?" A position can be up, the story compounding, and still be a Hold if the reward is now back-end-loaded and the near-term hazards have grown.
- Tally the timeline-slippage since you bought (later product entry, later profitability, a costlier acquisition) — a lengthening recovery pushes the payoff out and shrinks the margin of safety even as operations improve.
- Write down explicit thesis-breakers and a calendar of catalysts before deciding. If a stumble at those events would give a materially cheaper entry, hold and wait rather than add into "very little valuation cushion."
Here: Hay keeps BA (up ~5%, "core thesis intact and compounding") but moves it Buy → Hold and "would not add here" — the 777X slipped to 2027+, profitability to 2027, Spirit's reacquisition ran costly, and the stock is priced entirely on the out-year cash. Named thesis-breakers: a prolonged SPEEA engineers' strike, a quality glitch, or the FCF ramp slipping; catalyst calendar: the July 28 Q2 print, SPEEA talks into October, the FAA directive. Better entries "on a strike headline, an FAA or quality setback, or a delivery wobble."
Watch for
- The specific dated events (earnings, labor deadlines, regulatory rulings) most likely to produce the air-pocket that resets a crowded turnaround — those are your shopping list, not your reason to sell.
3. Buy an exchange operator as a discounted, leveraged proxy on its home market
The repeatable method
- Treat a monopoly/near-monopoly exchange as a toll booth on all trading in its country — steady, high-margin revenue that rises with volume, so it's effectively a leveraged bet on its home market's fortunes (it "fluctuates more than the market it provides access to").
- Anchor the valuation to the global peer group (exchange operators typically trade ~20×+ earnings). A big discount usually reflects the home market's cheapness, not the company's quality — so decompose the discount into "business" vs "country."
- Find the macro lever that would re-rate the whole market: for a high-real-rate emerging market, that lever is falling real interest rates lifting a single-digit-P/E index — then size for the political/currency risk that keeps it cheap.
Here: BOLSY (Brazil's exchange) is down ~8.5% (its swing ~25%) "despite extremely robust first quarter earnings," at trough P/S and P/E with a ~5% dividend, versus global exchange peers at "20x earnings or more." Hay ties the discount to Brazil's single-digit-P/E market and "the highest [real rates] of any major economy," which he expects to fall "in a big way… triggering a massive bull market in Brazilian equities" — and flags a Lula re-election as the political risk. He contrasts EWZ (the ETF, off ~15% from its April apex) to show the operator swings more than the index.
Watch for
- Real (inflation-adjusted) policy rates starting to fall in the home market; a company-specific earnings beat that the market ignores because it's dumping the whole country (the mispricing); and the election/currency risk that explains the discount — buy the correction, not the euphoria.