{"id":23783,"date":"2021-01-09T09:51:30","date_gmt":"2021-01-09T13:51:30","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=23783"},"modified":"2021-01-24T18:07:05","modified_gmt":"2021-01-24T22:07:05","slug":"aaa-enterprises","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/aaa-enterprises\/","title":{"rendered":"AAA Enterprises: Speculation & Failure"},"content":{"rendered":"\n

What was AAA Enterprises? How did the company fall and what business lessons can we learn from it about investing?<\/p>\n\n\n\n

AAA Enterprises was a business that sold mobile homes. They entered the stock market and grew rapidly, before filing for bankruptcy in 1971. <\/p>\n\n\n\n

Read more about AAA Enterprises and its stock history.<\/p>\n\n\n\n\n\n\n\n

What Happened to AAA Enterprises?<\/h2>\n\n\n\n

In the late 1960s, the markets enjoyed a \u201cfranchising\u201d craze\u2014anything in the market with \u201cfranchising\u201d in its strategy received hype and heady valuations.<\/p>\n\n\n\n

In this environment, AAA Enterprises entered the stock market. Its historical business was selling mobile homes; it seized on the idea of franchising this business, allowing others to sell mobile homes with its corporate name. It had another business of preparing tax returns (using mobile homes as offices); this business too was turned into a franchise business.<\/p>\n\n\n\n

In 1969, AAA Enterprises sold 500,000 shares to the investing public, at $13 per share. The stock soon more than doubled to 28, producing a valuation of $84 million. For the company\u2019s financial performance, this price was astronomical<\/strong>\u2014this price was ten times book value; at earnings of $690,000, the price-to-earnings ratio was 115 times<\/strong>!<\/p>\n\n\n\n

By this point in the book, an intelligent investor knows to be skeptical<\/a> of overhyped stocks that are driven by wild speculation and promises of limitless future growth. AAA Enterprises soon fell to the ground:<\/p>\n\n\n\n