4/30/2011

Leading Indicator ?: Scarce Supply of Deep Value Opportunities

couple this with no real insider buying for value based micro cap stocks.


I’m not a macro base stock market prognosticator but I can’t ignore the data I’m working with and insider buying and deep value opportunities are far less available. Ben Graham spoke about this and recommended when lack of value opportunities become more obvious its time to think about asset allocations. He meant consider raising your cash level.

I’m not recommending raising cash but recently I’ve been developing techniques to mine data for short opportunities.


Shareholder friendly ISSC was an idea introduced in the last post.

ISSC has a 48 million EV with improving valuation posting a negative 52 week return.

ISSC: Innovative Solutions & Support Inc Current Price = $5.62 Friday’s (04/29/11) Close

Innovative Solutions and Support designs, manufactures, and sells flat panel display systems, flight information computers, and advanced monitoring systems locally and and internationally. “The company’s product line includes flat panel display systems that can replace conventional analog and digital displays used in a cockpit to display information; air data products that calculate and display various measures, such as aircraft speed, altitude, and rate of ascent and descent; and engine and fuel displays, which convey information with respect to fuel and oil levels and engine activity, such as oil and hydraulic pressure and temperature. It sells its products to the Department of Defense (DoD), government agencies, defense contractors, commercial air transport carriers, aircraft operators and aircraft modification centers, and original equipment manufacturers (OEMs), as well as to the corporate/general aviation markets.”

Not many stocks with improving metrics posted a negative 52 week return. So I decided to list some useful attributes.

YOY quarterly revenue increased by 41.70%

Gross margins improved to a TTM of 57.53% compared to the average GM % of 51.30%, 32.70% and 22.90% for the 2009, 2008 and 2007 fiscal year end respectively.

Share count was reduced to 16,751,528 from an average count of 16,971,495 from 2006 to 2009.

Purchased 7.5 acres of land in the Eagleview Corporate Park in Exton, Pennsylvania in 2001.

$1 dividend on September 2008.

Shorts outstanding were reduced to 104,207 as of 04/15/11 from a January 01/31/11 balance of 303,812. Shares short as a percentage of the float currently stands at .1%

Insiders own 26.90% with 43.50% for institutions. Value institutions holding shares: Robeco, Royce, Mario Gabelli, GAMCO Westwood Mighty Mites

Free Cash Flow/Sales % was 20.27 (TTM), 21.42 (2010), 13.58 (2009),42.67 (2008), -64.60 (2007)

Neutral to Positive insider activity

Net cash = 2.24

Cash per share = 2.50

Current Ratio = 14.28

The real risk is the concentration of revenue from 4 customers, Iceland Air, National Airlines, Fed Ex and Eclipse Aerospace, accounted for 17%, 17%, 15% and 11% of net sales, respectively

2 comments:

Floris said...

Hey Shadow,

I can't agree more. Lack of decent net-nets is also more than ample proof of an expensive market. Only net nets which are left are chinese reverse mergers, of which a sizable percentage are probably frauds, leaving no margin of safety.Most value seems to be in unloved large caps (msft for example) and not in micro/small caps. I suppose we can expect a period of underperformance of small caps.

Thx for you continued postings,

Floris

Ted K said...

I wouldn't bet too much on MSFT either. i-Pad hitting them hard. PC sales down 8%. Throw in the fact Ballmer is a complete nutjob*, and I wouldn't count on much more than your dividend.

*see youtube videos of Ballmer at company events