Monday, July 14

Flexible Solutions (FSI) : Deep Neglect Deep Value Tiny Capitalization

A risky,ignored,value idea with growth potential. 

Flexible Solutions (FSI) “is the developer and manufacturer of biodegradable polymers for oil extraction, detergent ingredients and water treatment as well as crop nutrient availability chemistry. Flexible Solutions also manufactures biodegradable and environmentally safe water and energy conservation technologies.” Source Corporate Website

Future revenue and cash flow growth driven by large opportunities existing in technology within their NanoChem division.NanoChem solutions produce most of FSI’s revenue and cash flow. 

Biodegradable Polyaspartate sold by NanoChem benefits a wide range of industrial, agricultural and consumer markets. It provides a unique enhancement to various products and processes with a non toxic compound.

“In oil production, NanoChem's Polyasparate address a significant market for the prevention of scale and corrosion on oil producing platforms.In agriculture, these biodegradable proteins increase the efficiency of fertilizers, reducing fertilizer costs and ground water contamination while improving crop yields.Other products utilizing the Company's technology offer environmentally friendly improvements on products for the water treatment markets and for consumer detergents.” Source NanoChem Solutions

In addition to the NanoChem subsidiary, Flexible Solutions (FSI)offers other products that save water and energy; safe, organic and biodegrade. Flexible Solutions is an environmental technology company that researches, develops, manufactures, and markets chemicals that slow evaporation of water. Products include HEATSAVR, WATERSAVR, and ECOSAVR.

Ecosavr is a liquid solar pool cover that conserves heat and evaporation from pools. Heatsavr reduces a pool's energy demands and evaporation. WATERSAVR slows water evaporation in "reservoirs, potable water storage tanks, and livestock watering ponds, aqueducts, canals, and irrigation ditches". In addition it’s applicable for lawn care, potted and bedding plants. Further, Flexible Solutions offers biodegradable "TPA" along with patent pending nitrogen stabilizer for agriculture application announced 04/14/14.

Furthermore, "TPA" a thermal polyaspartate biopolymers is applicable for oil fields to “reduce scale and corrosion in various water systems”. Agricultural industry applications reduce fertilizer crystallization, “prevent early plugging of drip irrigation ports”, reduce maintenance costs and extend equipment’s useful life. Lastly, it’s used in personal care products, shampoo and cosmetics. Flexible Solutions founded in 1991 is headquartered in Canada.

Flexible Solutions (FSI)is a financially strong but tiny company, market capitalization 9.87M, enterprise value 12.33M.
The stock has been oversold, trading at a deep discount to historical and industry valuations. The horrible per share price performance is not justified by improved financial statement changes.

Price change over the prior 52 weeks was -33.33%, 3 year change -36.65% versus industry return of +24.32%.The table below shows FSI's material financial improvements.

Fiscal year end 2009 book value per share was .79. This per share book value improved 6.32% to MRQ .84. The price dropped over the same period by -52.98%.A 2009 fiscal year end price of $1.68 to the most recent price of $0.75. Further, Revenue and gross profit per share from fiscal year end 2009 to the MRQ improved by 64.29% and 40.34% respectively. 

Yet, SGA per share expense increased 52.35% for the same period. CEO 2009 compensation of  $177,000 increased 259.61% or $459,514 to $636,514 for the TTM. Note the per share price change over that period of -52.98%.

The stock trades at a historical low valuation for P/TB. The MRQ P/TB was .90 versus 2009 P/TB of 2.15. EV/Revenue materially improved to historical low EV/Rev of .86, 2009 EV/Rev 2.71.

The stock is risky. The risk primarily relates to its size,39 full time employees. Also, competition, expenses to market and develop/improve products, stocks is relatively illiquid, closely held with insider ownership at 47.93%. I have a small long position. 

Current Valuation:
Market Cap: 9.75M , Enterprise Value :   12.33M
Trailing P/E:   6.07 , Price/Sales (ttm):  0.66 , Price/Book (mrq):  0.90
Enterprise Value/Revenue (ttm):   0.82
Profit Margin (ttm):   10.60% , Return on Equity (ttm): 15.31%
Revenue (ttm):  15.11M, Qtrly Revenue Growth (yoy):   -15.40%
Gross Profit (ttm):  4.53M,  Book Value Per Share (mrq):  0.84
52-Week Change:   -33.33% , 52-Week High :  1.35 , 52-Week Low:     0.52
Shares Outstanding:    13.17M , Float:  6.85M
% Held by Insiders:    47.93% , % Held by Institutions:   12.30%

Long: FSI

update 07/16/14

"Today the Company announces that The City of Wichita Falls, Texas has approved a project to apply WaterSavr™ to the Lake Arrowhead Reservoir that supplies the City of Wichita Falls."

“WaterSavr™ is an evaporation reduction aid that has significantly reduced water loss in multiple studies around the world. It is approved for use in the USA by the National Sanitation Foundation (NSF) under Schedule 60. WaterSavr™ is 100% biodegradable and composed of only food grade ingredients. It is made in the USA. In several studies it has reduced evaporation from reservoirs by more than 30%. Evaporation is the largest form of water loss suffered by reservoirs in the region and it has been calculated that if Wichita Falls can save 10% of the water that normally evaporates each year, the saving would be greater than 1/3 of its annual consumption by the city of the year.

Sunday, June 29

Every Business has A Price For Which It’s A Bargain

Ben Graham was likely the first to write about this investment thought.

Did Full House Resorts (FLL) reach a bargain price, down 50% YTD? Underpeforming its Resort and Casino industry by 102.40% in 2013, last traded at 1.27 a fraction of its 4.07 book value. In addition, Full House sits at 10 year lows for valuations using P/B , P/S. Current share price is at 5 year low. 

Full House Resorts (FLL)a casino gaming company owns, invests and provides management consulting services for other casinos. Native American and commercial clients rely on FLL’s management expertise and industry knowledge.The company owns or operates the following; the Rising Star CasinoResort (Rising Sun, Indiana), Stockmans Casino (Fallon, Nevada), SilverSlipper Casino (Bay St. Louis,Mississippi) , Grand Lodge Casino (Incline Village, Nevada), Buffalo Thunder Casino(Sanata FE, New Mexico).

Additional revenue generating activities also include full resort accommodations. Hotel/rooms, spas, pools, meeting spaces, food outlets, theater for concerts, golf course, clubhouses, high end restaurants, and other related services are available at owned or managed properties.

Does (FLL)Full House Resorts' price drop reconcile with financial statement changes? Book value annual growth rates were 16.30% and 19.50% for the prior 10 and 5 year periods respectively. However, recent poor financial performance and uncertainty created by financial leverage weighs on the stock price. Then,on March 31, 2014 leverage ratio covenants were out of compliance, violated. Waivers were received from creditors. However, I can’t know the potential impact on future access to debt that's needed to complete construction of Silver Slipper's Hotel. The low interest rate coverage of .41 and Z score 1.18 cant be over looked as a current risk.But has the stock been over sold creating an opportunity. More importantly does less than expected results justify the 5 year low stock price?

FLL trades at a large discount to historical and industry averages for the following measures.Analysis of 61 Resort and Casino peers concluded FLL has the following mean reverting attributes.
Largest percentage drop from 52 week high, top 3 rank based percentage off historical high for P/B,industry's lowest P/B and P/S , 2nd lowest price to tangible book value, lowest 5 year,3 year and 52 week stock returns.

Table below has useful historical financial results. It helps to quantify the size of valuation drop. Tangible assets were acquired with the related improvement in revenue. However, price valuation was more than cut in half from 2010 and as recent as 2013 for P/TB.

Additional data below highlights the 2013 drop in Z score .

Positive EBITDA and EBIT from 2008 shown in the table below. Large growing book and revenue per share with large stock price drop.

Note the large annual increase in gross profit and revenue per share coupled with the slight reduction in share count from 2008.

The table below shows large per share increase in assets (improvement and acquisition of operating assets) funded by retained earnings and debt. Financial results were impacted by recent historically harsh weather, negative regional gaming trends and increase competition in their Ohio/Indiana market. But, management commented during results reported May 2014. Current headwinds, tough operating environment will pass. Therefore, investment in existing and new casino assets is positioned to create large unexpected upside results. Obvious historic and industry low valuation indicates the market has no expectations for any positive news. This extreme low expectation may be creating an investment opportunity.

Industry exceptionFLL is reporting small positive insider activity. Insider ownership is 20.25%.

FLL is a risky investment.But may have significant upside from these prices.

Investors may be over looking positive changes such as.

Substantial tax relief from the Rising Star facility, the amount is around $2.5 million per year starting in July 2014.

Aggressive cost containment at the reduced volume facilities. the reduced cost structure was $4.2 million over the same quarter a year ago. The expense savings will continue to accelerate.

New hotel tower at Rising Star in the North Star Tower is outperforming with weekend occupancies in a 90%-plus range

Management estimated weather accounted for approximately $1.4 million of the reduction EBITDA during the quarter.

Investment opportunities, Kentucky provides great future growth potential.

Full House transformed from a management company into a regional operator of diversified quality assets. 

Full House is comprised of long-tenured professionals in the gaming industry, with significant experience. This positions the company to leverage recent investments.

Construction on 142-room hotel tower at the Silver Slipper is expected for delivery in the first quarter of this year, or possibly early in the first quarter of next year.

To summarize data as of Friday 06/29/14.

Price = $1.27
Market Cap: 23.96M , Enterprise Value:  76.43M
Price/Sales:   0.18 ,Price/Book:   0.31
Enterprise Value/Revenue:    0.56 , Enterprise Value/EBITDA: 5.71
Gross Profit:   63.39M , EBITDA:  13.39M
Total Cash:    14.52M ,Total Cash Per Share:  0.77
Current Ratio:    2.10 , Book Value Per Share:     4.07
Operating Cash Flow (ttm):  8.79M , Levered Free Cash Flow (ttm):  1.25M
52-Week Change:  -52.61%
52-Week High (Jul 31, 2013):   3.05 , 52-Week Low (Jun 27, 2014): 1.18
% Held by Insiders:    20.25% , % Held by Institutions:  37.70%
Short % of Float: 0.30%

Long FLL

Tuesday, June 24

Ideas with TTM of Insider Buying and Share Count Reduction

Creating a list of stocks that have reduced their share count and insiders purchased over the past 52 weeks. These are some of the stocks. 

Not related to the topic of this post but purchased a few shares of LUB, TIBX and FLL. Still needs work but comfortable with TIBX below 20 and LUB below 5.00. FLL is a bit of a value trap but the price is creating an opportunity now under 1.40.

Insider activity below only for 2014 and data on share counts for the MRQ and the prior year quarter. Additionally contains other price performance and fundamental metrics. Ideas in the table are listed underneath. 

Bank of Commerce Holdings (BOCH), 
Titan International Inc. (TWI) , 
Unifi Inc. (UFI) ,
Georgetown Bancorp Inc. (GTWN) ,
First Clover Leaf Financial Corp. (FCLF) , 
Francesca's Holdings Corporation (FRAN),
Calamos Asset Management Inc. (CLMS), 
First Commonwealth Financial Corp. (FCF), 
Digirad Corporation (DRAD),
Emulex Corporation (ELX),
Air T Inc. (AIRT),
Rand Capital Corporation (RAND), 

Orbit International Corp. (ORBT)
Dick's Sporting Goods Inc. (DKS),
ImmuCell Corp. (ICCC), 
Ambassadors Group Inc. (EPAX), 
Valley Financial orporation (VYFC),
CCA Industries Inc. (CAW),
Global Partners LP (GLP) ,
U.S. Global Investors, Inc. (GROW) ,
Bassett Furniture Industries, Incorporated (BSET)

Click for quotes on all stocks in table below

You can include or exclude data by right mouse clicking.Furthermore on the right side you can add metrics that may add meaning to your analysis.  

Wednesday, June 11

Micro Cap Opportunity: Combination of Deep value, Quality and Mean Reversion

Codan Ltd on OTCBB (CODAF) or Codan Ltd/Australia (CDA:AU)

is financially strong, consistent earnings grower, diversified leader in several cyclical and non cyclical niche markets paying a consistent dividend down 77% for the past year. 

Luck or in this case bad luck (over reaction) is mean reverting. Multiple years of high ROIC reported in excess of 15% is not luck. Hence it logical to expect Codan will reverse the negative 77% 52 week change. Intrinsic value did not dramatically change over several months for this successful company founded in 1954. 

Rare combination of deep value, quality and mean reversion opportunity. 

Codan Limited (CODAF): CDA :(AU)  founded in 1954 designs, manufactures, and markets communications equipment, metal detection products, and mining technologies. Their core products are radio communications and metal detectors/mining technology. Also they provide multilayer printed circuit boards through IMP Electronics Solutions subsidiary. Codan markets include government, business, humanitarian, security, military and consumers in more than 150 countries. 

Codan has manufacturing and corporate offices in Australia with representation in the United States, England, Germany, India, and China. Additionally a manufacturing facility and representative office is located in Ireland.

So how does Codan (CODAF) (CDA.AU) offers a unique combination of value, quality and mean reversion opportunities. 

Market Cap = 121.20M Enterprise value = 184.08M
Current price = .68 USD or 0.7050 AUD 

52-Week Range in AUD = 0.5925 - 3.1600   

06/10/14 1 Australian Dollar equals 0.94 US Dollar    

Trailing P/E (ttm): 5.52 , Price/Sales (ttm):0.08, 
Enterprise Value/Revenue(ttm): 1.18 
Enterprise Value/EBITDA (ttm):5.08
Profit Margin (ttm): 14.22% ,Operating Margin (ttm): 18.74%
Return on Assets (ttm): 9.10% ,Return on Equity (ttm): 20.43%
Revenue (ttm):155.63M , Revenue Per Share (ttm): 0.88
EBITDA (ttm): 36.24M ,Net Income Avl to Common (ttm): 22.32M
Total Cash (mrq): 6.04M , Total Cash Per Share (mrq):0.03
Current Ratio (mrq):3.37
Book Value Per Share (mrq):  0.63
52-Week Change:   -77.90%
52-Week High (Jun 13, 2013):  3.10

Shares Outstanding: 176.94M ,Float: 82.02M

Dividend Indicated Gross Yield  17.22%

Cash Dividend (AUD) 0.0150 ,Dividend Ex-Date 03/07/2014

5 Year Div Growth 5.51% ,Next Earnings Announcement 08/22/20

Exceptional historical growth in BV,revenue,and EBITDA (see table below for 12 month, 5 year and 10 year periods).

Annualized Growth Rate

Mean reversion candidate with an unjustified 1-Yr negative stock price change of -76.00% 

High quality indicated by a Piotroski F-Score score of 7 (0 to 9).

Pitroski F- Score is calculated by reviewing and identifying positive or negative CHANGES in ROA, cash flow return on assets, net assets, quality of earnings by reviewing accruals, leverage and working capital, share count, gross margin and asset turnover. 

Quality metrics, Gross Margins and exceptional ROIC

Revenue annual growth % for the periods 5,10 Year and 12 months 11.00%, 6.30% and -24.60% respectively 

EBITDA annual growth % for the periods 5,10 Year and 12 months 13.20%, 29.40% and -51.30% respectively 

Book Value annual growth % for the periods 5,10 Year and 12 months 4.90%, 17.60% and 4.60% respectively 

Deep Discount to intrinsic value based on dividend yield, growing book value supported by years of positive free cash flow.  

A review of half-year results reported February 2014 for the period ended December 2013 provides valuable insight. Less than expected YOY results contributed to a dramatically lower stock price, -77% 52 week change. But management continue to see long-term growth opportunities in all three segments. Furthermore, management was proactive to the lower sales performance.The expense base was reduced by 10M per annum. Yet, despite this restructure, Codan will  maintain investment levels in new product development. This will ensure new product platforms are market available as needed.

Managment's Outlook

"Although sales have been softer during the past nine months, our baseline metal detection business remains strong, and we remain confident of future growth as we continue to develop new market-leading products and extend our global reach, all supplemented by the upside of future gold rushes. 

Radio Communications continues to broaden its business by leveraging off the new
Envoy product platform, expanding into new growth markets and offering an integrated solution incorporating our land mobile radio capability. Although history shows our sales can sometimes be volatile due to the nature of our gold detector markets, where gold discoveries can occur at any time and anywhere, we have a solid baseline business from which to grow and are supplementing this with heavy investment in new product development and entry into adjacent markets." 


Sunday, June 1

Deepest Deep Value Micro Caps Continued

“Reversion to the mean is the iron rule of financial markets” John Bogle

“Many shall be restored that now are fallen and many shall fall that now are in honor.” - Horace, published in Security Analysis

Post motivated by recognizing our most productive efforts should NOT be focused on finding the best stock using traditional metrics. Instead, the most mispriced bets placed by irrational Mr. Market regardless of its quality or net reported assets.


Mr. Market sets odds, probabilities on a stock’s future outcome. Yet, human behavior creates irrational pricing. but, changes in intrinsic value are slow. Hence, this creates investable windows of opportunities.


A stock may miss earnings expectation by 10 percent and lose half its market value. This is likely an irrational price swing. Perhaps creating a short window of opportunity to invest short or longer term until the odds' maker (Mr. Market) adjusts its error.  It should not matter if it’s the operationally the worse company in its industry. But instead if it’s price variance from its value to other potential investors or companies that can benefit from their assets. “there are no bad assets just bad prices”.


Many ideas wont have an obvious margin of safety in the traditional sense of Graham’s definition. Yet a dramatic price drop could create an investable window of opportunity even if it’s a decaying assets base. A recent example last week, I was looking at the apparel store industry to post comments on WTSL. BODY a very financially ugly stock in business since 1972. Long story short there were plenty of opportunities to pick up shares at or below.65. M+A firms saw value and started picking up more shares. But it wasn’t until Friday the stock moved up 38% with no news. Just an example on how even without the traditional Graham's margin of safety there may be value in the brand, leases or other intangibles at the right price. Body’s 52 week change is over negative 90%. 

Thus, focusing on the markets over reaction may provide the best avenue for alpha creation. 

WTSL (Wet Seal) is an ugly stock selling in a horrible industry, mall based women apparel. Undoubtedly it's risky. Yet a potential high probability outsized gain makes this deep discounted value idea a superior investment. Trading (05/30/14) at a historical low price of $0.86 (EV per share is $0.44), May 2004 $5.83, May 1999 $12.31, May 1994 $1.50, May 1992 $5.00.

WSTL enters the second half with a more refined and productive base.

Based on the May 27 conference call several changes are catalysts for future price moves expected to be realized over the second half of the year.

List of improvements yet to be realized in the stock price;

*)Arden B division fully closed and transitioned during this period freeing up 1.3 million of annual costs to be allocated to more productive assets

*)Lease expirations for nonproductive locations freeing capital at no additional costs
*)54 Arden stores now fully set with Wet Seal and Wet Seal Plus merchandise in time for the back-to-school selling season. 31 of these locations will feature Wet Seal Plus (new concept) and the remaining 23 will feature Wet Seal product.  Wet Seal Plus now introduced with tremendous conviction and potential for both intermediate and long term growth.
*)Three of the newest Board members have a wealth of experience in social, digital and e-commerce.
*)Wet Seal will become a featured merchant on the Oink website. This will offer payment technology developed for kids and teens.
*)Board of Directors took action to lower directive compensation by 20% and decreases the Board size from 9 to 7members.
*)Lease expirations for non productive stores with ability to walk away at no additional costs.
*)The quarter ended with over $80 million of liquidity between cash and bank line availability. Continued focus on preservation of the company’s financial strength.
A warning, the macro environment for mall based women apparel MAY not be different this time. Is mall traffic permanently challenged? But even after that said investors can rationalize an arbitrage play (stock rental), not a buy and hold retirement investment. But I can’t know. I do know the WSTL is one of the cheapest stock in the market based on multiple metrics.

These are additional financial reasons to consider WTSL. Aggressive 5% share count reduction from 88.50M on Q1 2013 (reported 05/04/13) to 84.11M for the most recent Q1 2014 (reported 05/04/14). Furthermore a 15% share count reduction from 2011 share count of 99.26M.  52 week price change is -83.60%.  52 week high was 5.20 now $0.84 per share, enterprise value per share is $0.44.
Reasonable F score indicating relatively sound business, not great at this time.

Fantastically low valuations such as

EV/GP = 41.04M/135.24M = .30. or $3.637439 in gross profits for each share with current EV at .44.

EV/Sales = .08 or or $13.62 in sales for each share purchased with current EV at .44.

Chuck Royce aggressively purchased the stock for the quarterly period ending 03/31/2014. 845,000 shares were purchased for an average price of $2.04 to bring their total holding to 908,200 shares.

Recent positive insider activity is anomaly for the women apparel industry.

WTSL positive insider activity

Wet Seal is a mall, off mall,and online women apparel retailer with 532 stores in 47 states and Puerto Rico. Wet Seal. was founded in 1962 and is based in Foothill Ranch, California

Market Cap: 70.65M , Enterprise Value :  41.04M
Price/Sales :  0.14 ,Price/Book:  1.57
Enterprise Value/Revenue:   0.08
Revenue (ttm): 506.42M , Revenue Per Share (ttm): 6.00
Qtrly Revenue Growth (yoy): -16.90%
Gross Profit (ttm): 135.24M
Total Cash (mrq):  54.49M ,Total Cash Per Share (mrq):  0.65
Total Debt (mrq):  21.52M
Current Ratio (mrq):    1.85
Book Value Per Share (mrq):    0.55
52-Week Change:  -83.06%
Shares Outstanding:  84.11M ,Float:  60.70M
% Held by Insiders:  3.01% ,% Held by Institutions:  79.60%
Short % of Float : 20.70%


CODAF or CDA:AU : Codan Limited

updates will continue