QXO. Again.

QXO. Again.

Yes, I know you are probably tired of reading about this. To be honest I’m tired of thinking about it. But the reality to fiction spread here continues to be really high. People could end up losing a lot of money. And due to the (perceived) market cap and lack of volume a lot of outlets don’t have it on their radar screen. So, there isn’t a lot of information out there.

As we said last time, Brad Jacobs’ planned building products rollup is now a thing on public markets and can be invested in. But the whole thing remains a mess. As I type, the shares are trading for $150 apiece and Yahoo (and many others) say the market cap is below $100 million.

Thursday night, QXO issued a release announcing a $3.5 billion capital raise from a group of investors. It is an interesting release. It appears to be the largest ever equity offering in the building products industry. It also appears to be the largest ever investment ever made into an industrial company. Public or private. The investors have not all been disclosed, but the names being whispered are an impressive list of who’s whos. Many of them have done very well with Jacobs in the past. They know what they are buying into.

The news also should expose how ridiculous that sub-$100 million market cap is. (And is likely responsible for the selloff.)

So, what’s going on? The issue appears to be that certain data providers don’t count preferred stock when calculating market cap until those preferreds are converted. There is some logic there. And perhaps it works in more instances than it doesn’t. But in this case, where more than 90% of the potential float is in unconverted preferred (which admittedly is rare), it is not very helpful.

The real thing for investors to note in the release is the breakdown of share count and the price per share being paid. You can read the release here. I copied the key section below.

All in, with the latest raise and everything converted to common, the company would have 821.6 million shares of common stock. Not the 664,130 shares that Yahoo is reporting. That would imply a market cap of $123.24 billion at the price above. Not $99.6 million. The investors are buying in at $9.14 apiece. That’s a heck of a discount to that $150 per share price.

What should QXO be worth? No single person can tell you. We are talking about a holding company run by some really smart people with excellent track records who have upwards of $4.5 billion in the bank but nothing more right now. Add in the potential to use debt, and there is easily $5.5 billion in dry powder to put to work. FWIW, Jacobs has said he hopes to grow QXO into a $50 billion revenue company over the next decade. The market likes to be forward looking and pay for potential. Jacobs has a lot of credibility with the market.

As has been made clear, I’m a huge fan of this team and this story. I like it enough that I’d be willing to accept a valuation above $10 billion here. But even $10 billion would imply a share price in the $12 to $13 range when using that 821.6 million share number.

Two things can be true at once.

1. QXO is an intriguing opportunity that I can’t wait to add to my portfolio.

2. QXO shares today are, to me, untouchable.

I am not here to tell anyone when to buy or sell a stock. That’s your call. But I do fear that anyone buying or holding today, perhaps based on the market cap they see on their screen (or perhaps seeing “value” in a stock down big from where it was earlier in the week), will end up losing a lot of money.

The relevant information is all there if you look. Please understand what you are buying before you pull the trigger.

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