3/27/2010

New Ben Graham Net Net Idea

Benjamin Graham in The Intelligent Investor argued that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity provided he practices adequate diversification and the buyer is informed and experienced.

I’m reluctant to mention this idea but the market has taken out so many ideas based on valuation. So here it goes.

LOOK (LookSmart, Ltd)

Yahoo Quote



Per share value

Price: $1.00 ($17,150,000)

Cash+ AR- Total Liabilities: $1.19

EV: $.15 (2,657,000)

Cash: $1.58

Liabilities: $.79

Net Tangible Assets: $1.42

AR: $.34

Sales: $3.15

GP: $1.15

In the recent conference call the new CEO (Dr. Jean-Yves Dexmier) was not pleased with the fourth quarter results. His ultimate solution was to hire additional data analysts. Not sure this is the answer but understanding the customers desired metrics and how to improve may be helpful to improve financial results. Let’s hope they get it right before it’s too late.

Risk:

Concentrated customer source:
Decreasing margins

5 comments:

tedk81 said...

This is too expensive to be a Ben Graham Net-Net:

current assets - total liabilities = $1.19

66% of 1.19 = $0.78

Still seems relatively cheap at this level, cheap enough to have a second look at.

ShadowStock said...

good point

Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 *
inventory) – total liabilities

Thanks
John

Jae Jun said...

My concern is the cash burn. The company hasn't been cash flow positive for over 6 years.

Any concerns about this?

ShadowStock said...

Hi Jae Jun

When I get home tonight I will try to provide more insight.

Another angle other than the balance sheet which will be fine for some time is the push by the CEO to expand the functionality and the market potential's wide spread use of their services.
The recent purchase and use of Cisco’s "Unified Computing System" technology, new senior management hires like Vice President, Distribution Network
http://finance.yahoo.com/news/LookSmart-Announces-pz-3490068775.html?x=0&.v=1
and senior data miners to push out the usefulness of their services.
With the new data center, 1.1 million deal already paid for Cisco technology , activist shareholders, stock based compensation with smaller than average senior management salaries.
Time will tell if they can turn this ship but it seems positive press will substantially move the stock at current prices.
Risky and needs more work. I’m late for work so I have to go now.

Thanks for the question
John

Anonymous said...

not sure why you were reluctant to post, this is a great idea. It is not quite cheap enough imo given management but if activist shareholder gets pushy this could get interesting really quickly....