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Two questions for you. What if you could buy a Ferrari for the price of a Toyota? And how do billionaire investors find fortunes hiding in plain sight? Bill Aman, founder of Persing Square Capital, a 20 billion hedge fund, has built his career and billions doing exactly that. He looks past lazy Wall Street shortcuts like PE ratios, and finds invisible money that others miss.
The result, deals that double his money while everyone else is distracted by the wrong numbers. Today we break down two of AMAN's favorite hidden value plays. From a burger chain windfall to a bold crisis bet and what do they mean for your investing? First up, listen to how Aman essentially got Wendy's for free by spotting a hidden gem inside it.
So basically the first activist investment of Persing Square was Wendy's. Actually, it was an article in Baron saying how cheap Wendy's stock was and it owned a company called Tim Hortons. And at the time, uh, we bought 10% of Wendy's for a valuation of about 4 and a half billion for the whole company.
And they owned 100% of Tim Hortons that generated about 450 million of operating income. We thought Tim Hortons was worth a lot more than all of Wendy's. And our thesis was split the two. And so we bought a stake. We called the management. They didn't retake our call. Uh, sent an email, they didn't respond.
Uh, so I had a friend who worked at Blackstone and I said, you know, would Blackstone do a fairness opinion, an effect of what Wendy's would be worth if they spun off Tim Hortons. How did you get Blackstone to take you seriously? Um, just a friend who worked there, you know, want to do business. He was in Blackstone had an investment bank at the time and, uh, Steve Schwarzman actually signed off on the fairness opinion for Wendy spinning off Tim Hortons and we mailed it in, filed it in 13D, and 6 weeks later they split the company.
Stock doubled. Aman just revealed a lowrisk win. Wendy's owned Tim Hortons and Tim Hortons alone was worth more than Wendy's entire market cap. Aman realized he was buying Wendy's burgers for nothing once the coffee and donuts chain value was counted. So he pushed management to spin off Tim Hortons.
6 weeks later, Wendy's stock doubled. Let's run the math like Atman did. Wendy's whole company valued at $4.5 billion. Tim Hortons earning $450 million in yearly operating profits. Coffee chains typically trade at 15 times earnings. That's $6.7 billion for Tim Hortons alone. Subtract from that Wendy's market cap and the burger business was being valued at $2.2 billion.
And this isn't a one-off fluke. Wall Street routinely undervalues conglomerates because most investors won't bother to do the extra math. One study found that corporate spin-offs beat the overall market by roughly 10% in their first 3 years. Why? Because once the parts are separated, their true worth shines and force selling mispricing correct.
In the late 2000s, Yahoo stock was so cheap relative to its Alibaba stake that investors joke you could buy all of Yahoo and get the core business for free. What should you watch for? Companies with a hidden gem inside. A subsidiary or an asset that could be worth much more than the entire parent. If the market cap is $5 billion, but one division could IPO at 5 billion on its own, that's a giant neon sign of hidden value.
Now, a reality check. Sure, Wendy's stock doubled on the Tim Horton spin-off, but after Acman took profits and moved on, Wendy's struggled without his fast growing arm. The burger business alone initially floundered. Aman blamed new management, but it highlights a risk. What if the part you get for free was actually propping up the whole?
This is why it's crucial not just to count the assets, but to judge their standalone strength. So far, we've seen one way Acman tries to find hidden value, digging deeper into the balance sheet. But he has another trick that doesn't involve hidden assets at all. Instead of looking inside a company for value, he looks ahead in time.
He'll buy a stock that looks expensive by conventional metrics because he knows that the current numbers lie. Up next, Aman shares a oneline test for true value. Listen how he justifies paying 50 times earnings for a company in a crisis. But before we get back to Aman, don't forget to like and subscribe for more content just like this.
It really helps me out as a small creator. Now, back to Aman. So, you've made the point these are things that aren't easy to replicate. Yes. No one's going to reinvent Amazon anytime soon. That's right. And uh sometimes you don't buy what cheap. You think it's a good value, but it doesn't look cheap.
Chipotle. Yeah. So probably didn't look people use kind of a rubric for valuing businesses, right? The PE ratio is kind of very simple way to think about a business. But a stock can be expensive at 10 times earnings and it can be cheap at 50 times earnings. What matters is not next year's earnings. What matters is the present value of the cash over the life of the business.
At the time we bought Chipotle, they had a food safety crisis. Sales were getting crushed. People thought the company was going out of business and on it didn't look cheap. But if you could if you believed you could change the course of Chipotle's history, fix the food safety issues, it was extremely cheap.
And the stock is up, you know, probably ninefold from the time we bought it. It's amazing. Chipotle is now going into Mexico. Everyone sort of assumed it was from Mexico. Did you catch that? A stock can be cheap at 50 times earnings and expensive at 10 times. That flips the most basic valuation rule on its head.
The one your finance professor taught you. The one CNBC flashes on the screen. Aman's point, context is everything. Next year's earnings might be temporarily crushed, so a raw PE can lie. In Chipotle's case, the company had just become a punchline. Eoli headlines everywhere. Empty restaurants that used to have lines out the door.
Sales plunged, profitability cratered, and the stock's PE ratio shot up because earnings were temporarily tiny. Most investors ran away, but Aman ran towards the fire. He looked at Chipotle's long-term earning power, the durable cash this beloved burrito chain could make once the crisis passed. Fast forward, Chipotle fixed the safety issues, customers came back, and AMA made about 9 times his money.
Let's translate that into something concrete. Imagine Tom owns a rental property that usually pulls $100,000 in a year until a storm damages the place. This year's profits are only $10,000. If someone values the property at 1 million, his current PE looks like a h 100red. Insanely expensive. But Tom knows this was a one-time bad year and rents will bounce back to $100,000 after repairs.
He's effectively paying 10 times normalized earnings, not 100. Chipotle's situation in 2016 was just like this. Net income had plunged to just $23 million during the Ecoled crisis. But in 2022, after the overhaul, Chipotle earned nearly $900 million. AMAN's buying price was dirt cheap relative to those future earnings.
Now, how can we spot these situations? Look for a strong business hit by a one-off crisis, something fixable. It could be a scandal, a product recall, a temporary consumer boycott. The key is a durable brand. If earnings are way down and the PE ratio shot up, ask yourself why. Is it a permanent decline or just a bad year?
If customers still fundamentally love the product, the business might roar back once the issue is resolved. But here's the caution. Not every crisis has a happy ending. Sometimes that earnings power doesn't come back. Maybe the damage to the brand is lasting or management can't execute a fix. Aman mitigated this by getting actively involved.
He persuaded Chipotle to bring in a new CEO from Taco Bell, Brian Nicole, known for turning around brands. What we can do is study the problem. Is it fixable? Is it temporary? If yes, you might have an opening to buy a great company when it's on sale due to fear. If not, stay away, no matter how cheap it looks.
Bill Aman's two plays teach a simple lesson. Don't trust surface numbers blindly. Whether it's spotting a hidden asset waiting to be unlocked or recognizing that a crisis has an end, the real skill is valuing a business like a business, not a stock ticker. The more you train yourself to find the hidden value, the more you tilt the odds in your favor.
So, next time you see a stock that looks oddly cheap or pricey, take a page from Aman's playbook and dig deeper. You might find you're looking at your own turnaround jackpot.
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