We came across a bullish thesis on ZIM Integrated Shipping Services Ltd. (ZIM) on Hidden Rock Capital’s Newsletter’s Substack by Hidden Rock Capital. In this article, we will summarize the bulls’ thesis on ZIM. ZIM Integrated Shipping Services Ltd.’s share was trading at $22.80 as of Oct 25th. ZIM’s trailing P/E was 0.44 according to Yahoo Finance.
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ZIM Integrated Shipping (ZIM), engaged in the container shipping business, presents an intriguing deep-value opportunity due to its remarkably low valuation, multiple potential catalysts, and high short interest, making it a compelling stock to consider on dips. First, the valuation of ZIM is almost unprecedented in today’s market. The stock trades at less than 2 times projected 2024 earnings, an extremely low P/E ratio rarely seen for a viable business with solid cash flow. Based on quarterly earnings estimates of $0.75 in Q1, $3.08 in Q2, and projected earnings of $3.50 to $4.50 in Q3 and $4 to $5 in Q4, ZIM is set to deliver between $11 and $13 per share in earnings for 2024. At its current price, this places ZIM’s P/E ratio well under 2x, a bargain level that’s hard to find in a market where most stocks are at record highs. This deep discount reflects market skepticism about ZIM’s future earnings, assuming the shipping market may decline sharply. However, with robust shipping rates and ZIM’s healthy financial footing, the company’s low valuation appears unjustified, creating an opportunity for revaluation.
Additionally, there are several catalysts that could support ZIM’s stock price. The market currently prices ZIM as though its earnings are poised for a significant drop, yet the shipping market’s strength and global economic recovery suggest otherwise. The ongoing Red Sea conflict, heightened by attacks on commercial ships, has contributed to persistent supply chain disruptions, keeping shipping rates elevated. The Middle East tensions show little sign of abating, suggesting that higher shipping rates may extend further than anticipated. Moreover, recent guidance increases by shipping giant MAERSK due to strong demand hint that ZIM may also outperform in Q3 and raise its own full-year forecasts. With China implementing economic stimulus and the U.S. potentially avoiding a recession, these global factors support a stronger shipping market than pessimistic predictions assume, benefiting ZIM’s revenue potential.
Finally, ZIM’s high short interest, at approximately 13%-16% of shares, introduces the possibility of a short squeeze if the stock continues to defy bearish expectations. Given ZIM’s policy of paying out over 30% of its earnings as dividends, projected dividends of at least $1 per share could intensify pressure on shorts, who would need to cover to avoid paying these dividends. While ZIM’s short interest isn’t the core thesis, it adds a unique “special situation” angle to this deep value play. Overall, ZIM offers an appealing investment case for risk-tolerant investors looking to capitalize on its undervaluation, potential catalysts, and an interesting geopolitical hedge.
ZIM Integrated Shipping Services Ltd. (ZIM) is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 26 hedge fund portfolios held ZIM at the end of the second quarter which was 17 in the previous quarter. While we acknowledge the risk and potential of ZIM 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 ZIM 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.