Boston Omaha: Navigating Turbulence—Is the Market Undervaluing a Recovery Story?

Boston Omaha Corporation (NYSE: BOC) has long been a case study in the delicate balance between strategic diversification and operational volatility. Over the past year, the company has faced a mix of headwinds and tailwinds, with its financial performance reflecting both resilience and fragility. For investors with a medium-term horizon, the question is whether the current market valuation—trading at a 12-month low of $13.72 as of August 2025—presents an opportunity to capitalize on a potential turnaround.

Early-Stage Warning Signals: Red Flags and Green Lights

Boston Omaha's Q3 2024 results revealed a net loss of $1.27 million, despite a 12.84% quarter-over-quarter revenue increase to $28 million. The operating margin of -2.67% and net profit margin of -4.59% highlight structural inefficiencies. However, the company's operating cash flow of $5.2 million suggests that core operations remain cash-generative—a critical differentiator in a downturn.

The 2024 annual report paints a slightly more optimistic picture. Total revenue rose 12.5% year-over-year to $108.3 million, driven by growth in billboard rentals (+5.15%), broadband services (+10.63%), and insurance premiums (+41.82%). Yet, the net loss attributable to common stockholders narrowed to $1.29 million from $7 million in 2023, a 81.56% improvement. This progress, however, is partially attributable to non-operational gains, such as a $17 million unrealized gain on Sky Harbour warrants, rather than organic operational efficiency.

A key red flag lies in the company's cost structure. Depreciation and amortization expenses increased 13.36% year-over-year to $22.2 million, outpacing revenue growth. Meanwhile, the interest burden ratio of 244.03% in Q3 2024 underscores the drag of debt servicing on profitability.

Operational Efficiency: Progress Amid Challenges

Boston Omaha's core segments—outdoor advertising, broadband services, and insurance—show signs of stabilization. Billboard rentals and broadband services accounted for 78% of total revenue in 2024, with both segments posting double-digit growth. The insurance segment, though smaller, saw a 41.82% increase in premiums earned, suggesting strong demand for surety products.

However, the company's reliance on non-operational gains remains a double-edged sword. The 2024 annual report attributes much of its improved net income to a $29.1 million gain from Sky Harbour warrants, partially offset by a $17.3 million loss from unconsolidated affiliates. This volatility raises questions about the sustainability of earnings.

Operational cash flow of $21.2 million in 2024 (up from $16.1 million in 2023) and a 12.5% revenue increase indicate that management is prioritizing liquidity. Share repurchases of $1.6 million in 2024 also signal confidence in the stock's intrinsic value. Yet, the reduction in unrestricted cash and investments from $71.3 million to $41.7 million suggests capital is being redeployed, potentially into riskier ventures like Sky Harbour.

Management's Track Record: Navigating Downturns

Boston Omaha's leadership has historically leveraged its diverse portfolio to weather downturns. For example, during the 2020 pandemic, the company's asset management segment offset declines in other areas. However, the current recovery path is more complex.

The Sky Harbour investment, valued at $94.5 million on the balance sheet but potentially worth $170.5 million at fair value, represents both an opportunity and a risk. While unrealized gains could boost earnings, a market correction in Sky Harbour's valuation would exacerbate losses. Management's ability to balance this exposure while maintaining core segment growth will be critical.

Is the Market Undervaluing Boston Omaha?

At a book value per share of $16.99 (as of December 2024) and a stock price of $13.72, Boston Omaha trades at a 19% discount to book value. This discount reflects investor skepticism about the company's operational margins and reliance on non-core gains. However, the 12.5% revenue growth and improved cash flow suggest that the market may be underappreciating the company's ability to stabilize its core operations.

For a medium-term investor, the key variables are:
1. Sustainability of Core Growth: Can billboard rentals and broadband services maintain their momentum?
2. Sky Harbour's Performance: Will the investment's fair value continue to appreciate, or is a correction imminent?
3. Cost Discipline: Can management reduce the interest burden and improve operating margins?

Investment Thesis: A Calculated Bet

Boston Omaha's current valuation offers a strategic entry point for investors willing to tolerate short-term volatility. The company's core segments are showing resilience, and its operational cash flow provides a buffer against further losses. However, the reliance on Sky Harbour's performance introduces asymmetry—upside potential if the investment appreciates, but downside risk if it depreciates.

Recommendation:
- Buy for investors who believe in the long-term value of Boston Omaha's core assets and are comfortable with the Sky Harbour exposure.
- Wait for a clearer resolution of the company's cost structure and interest burden before committing larger capital.

In conclusion, Boston Omaha is at a crossroads. Its path to recovery hinges on balancing operational efficiency with strategic investments. While the current undervaluation is compelling, success will depend on management's ability to navigate the twin challenges of debt servicing and volatile investment gains. For those with a medium-term horizon and a tolerance for risk, the stock could offer a compelling opportunity—if the company can prove it can stabilize its operations and capitalize on its strengths.