Free Cash Flow Bargin: Market and enterprise value below 15 Million


Yahoo Stock Quote

ELSE grabbed my attention partially based on their strong current financial results. Revenue increased 438,000 or 34.7% across all product line for the three month period ended June 30, 2010 supported my margin expansion and growing FCF as a percentage of sales. Gross margin for the three-month period ended June 30, 2010 was 60.1% versus 58.6% for the same period in 2009.

Price = 4.15

Dividend Yield = 3.90%

TTM FCF per share = .28

TTM EBITDA per share = .30

FCF/Sales = 14.12%

Cash per share = 2.51

Insiders hold 56%

Institutions = 1.80%

FCF/EV = 12.31%

SGA/Ttl Rev = .39

Enterprise value = 6.6 million

Market cap = 14 million

52 week price change = 48%

Off 52 week high = 13.76%

Off 52 week low = 48.84%

Cash % Price = 68%

EV/Rev = 1.06

Overall this stable well managed closely held tiny nano cap continues to perform operationally excellent and has seen a significant increase in operational performance based on many factors that will drive a higher market value.

ELSE continues to move all the levers in the strategic profit formula  (DuPont) in the right direction.

Productivity, Profitability and Captial Sturcture
Productivity is seen with an improved cash conversion cycle compared to historical results.

Gross Margin, FCF to sales, operating margin have all dramatically improved indicating improved profitability.

Capital structure is clean with no debt and a stable share count over the past 5 years.

ELSE owns and occupy a 25,400 square foot facility at 6111 Blue Circle Drive, Minnetonka, Minnesota. Executive compensation is modest.CEO reported an annual salary of only 176k.


Anonymous said...

Looks intersting and nice balance sheet.
But i checked and the revenues are in decresing trend in the last few years (comparing to 2009 is problematic as it was terrible yesr).
Forward P/E 24.5 P/B 1.4 P/S 2.2 show that the price is fairly valued at the moment. the large cash use to pay nice dividend. there is no reason for the price to increase. It is in the same price range for years with no reason to increase.
Do you see any reason for this small cap to outperform?

ShadowStock said...

I agree with your points. But this tiny closely held company deserves to be on a watch list.A sudden drop in price may present opportunity for this well managed business.


Anonymous said...


Any comments on their investments in Rudolph and PPT?


ShadowStock said...

Yep, PPT last traded at 6.75 and ELSE holds 551,759 shares for a current market value of 3,724,373 or 1.09 per share. PPT also yields 6.75%.

Rudolph (RTEC) last traded @ 8.65 and they own 343,267 shares. The current market value is 2,969,260 or .872 per share.

Treasury bills of 5,050,000 or 1.48per share and 843,000 in cash
Real estate, dividend, closely held and a strong FCF business.

Buy on weakness and purchase a basket of similar stocks and things should work out.
I cant go into much detail but make the effort to review for deep value or special situations.

Thanks for reading

Anonymous said...

wait, the company has >$12m in liquid securities against a market cap of <$14m, so if the "true" ev is ~$2m against a fcf of at least $500k a year? I don't see why anyone is arguing with valuation. Looks cheap to me.

where are you seeing the stock investments though on their financials?

you may want to check out the Canadian company Danier too. Smart management and big cash balance.

you ever look at sumzero.com or the value investors club? you should check them out. You're research is clearly good enough if you fleshed one of these ideas out a bit.


ShadowStock said...

taken from the 10k


ShadowStock said...

Complement from you is sincerely appreciated. Thanks!

The goal is to publish the best overlooked ideas with some key data so investors can take the idea across the finish line with a small amount of work. All the published ideas go through an extremely rigorous check list.
Now if I can only make a modest living on this work and leave the day job :)

ShadowStock said...

Taken from the 10k


ShadowStock said...


"In addition, through our subsidiary ESI Investment Company, we periodically make strategic investments in other businesses and companies, primarily when we believe that such investments will facilitate development of technology complementary to our existing products. Although we invest in other businesses and companies through our subsidiary ESI Investment Company, we do not intend to become an investment company and intend to remain primarily an operating company. Our primary investments are 343,267 shares of Rudolph Technologies, Inc. and 551,759 shares of PPT Vision, Inc. The Rudolph Technologies, Inc. investment is accounted for using the available-for-sale method. The PPT Vision investment is accounted for under the equity method of accounting."

Anonymous said...

interesting shadow, thanks for the idea and info. surprised you aren't into investing as a professional yet judging by the site. sumzero.com has a decent job board and is full of pro investors and pm's so you could score a job on there. the CFA program is also highly recommended to break into the industry. not only is it highly regarded designation but the local CFA chapters are the best place you will ever find for getting an analyst job.

shoot me an email sometime if you are seriously looking.

here is my seekingalpha page too. sometimes I post some interesting micro cap ideas.