We came across a bullish thesis on Nelnet, Inc. (NNI) on Substack by Aaron Edelheit. In this article, we will summarize the bulls’ thesis on NNI. Nelnet, Inc. (NNI)'s share was trading at $106.54 as of April 22^nd. NNI’s trailing and forward P/E were 21.22 and 15.75 respectively according to Yahoo Finance.

A loan officer typing away in her office with stacks of paperwork in the background.

Nelnet (NNI) recently disclosed a major financial development through an 8-K filing, revealing it will receive $410 million in cash and recognize a $175 million gain from its investment in Allo, a fiber internet provider. This understated announcement, consistent with Nelnet’s conservative communication style, marks a substantial return on an investment the company began in 2015. Over the past decade, Nelnet invested $490 million into Allo through acquisitions, loans, and capital expenditures. In 2020, Nelnet sold half its stake to SDC Capital Partners for $197 million and $160 million in preferred equity. The latest transaction involves selling the remaining preferred equity and a portion of common equity for $410 million, while still retaining a 26% equity stake—estimated to be worth $253 million, although it is currently carried at zero on the balance sheet. Importantly, this windfall adds to other significant sources of liquidity: $250 million from its winding down student loan book and $240 million in expected annual earnings. Altogether, Nelnet is set to hold over $900 million in cash—more than 20% of its sub-$4 billion market cap—during a period of tightening liquidity in financial markets. Modeled after the non-promotional, disciplined ethos of Berkshire Hathaway, Nelnet has compounded book value at 16% annually since 2004 and has quietly built a powerful investment platform with assets in education, payments, and technology—including a valuable 20% stake in HUDL. Book value is expected to exceed $100 per share by Q2, while its intrinsic value is believed to be near $200 per share, highlighting a deep undervaluation.

Nelnet, Inc. (NNI) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 18 hedge fund portfolios held NNI at the end of the fourth quarter which was 15 in the previous quarter. While we acknowledge the risk and potential of NNI 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 NNI 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.