Overlooked Value with Cannibals

Charlie Munger advised investors to pay close attention to cannibal companies. Cannibal companies are buying back huge amounts of their stock. This has always been on my list of items to review. The reasons are obvious. These companies are shareholder friendly, create value when the stock is below intrinsic value, reduce share count that will improve all ratios and reduce the supply of stock, just to name a few.

Tonight I will quickly start a list of value based ideas that are aggressively reducing their share count. I keep putting off these posts. Tomorrow I will post supporting details. But I still want to introduce some of the most ruthless cannibals. 

 

(ITEX): ITEX Corp is deep value idea engaged in the business of battering. For over 30 years ITEX has created a distribution channel for business to exchange services or goods with battering to preserve cash flow. Members utilize digital currency (ITEX dollars) to exchange goods and services rather than use cash.

The reported share count last year January 2012 was 3,636,000. The tender offer to purchase their stock for 4.20 per share along with share buybacks quickly and aggressively reduced the share count to 2,616,000. 28% of the share count was reduced!Then on February 26,2013 the board approved a 25% increase in the company’s quarterly dividend to a new quarterly dividend of .05 per share! If we apply that to the current price the dividend yield based on today’s closing price would be 5.41%!

Results were reported Thursday March 14.

• Income from Operations increased 76% to $499,000 compared to $283,000
• Earnings per share increased 17% to $0.14 compared to $0.12
• Revenue decreased 6% to $3,960,000 compared to $4,229,000
• SG&A expenses decreased 34% to $368,000 compared to $558,000
• Cash increased 27% to $2,461,000 compared to $1,942,000 at fiscal year-end July 31
• Paid a $0.04 per share cash dividend.

Thanks to the years of hard work by activist David Polonitza ITEX is moving in the right direction. Management, insiders, employees and shareholders are beginning to see the benefits of his work. I believe they are now positioned to focus on operations and the future of the company as all stakeholders should benefit.

ITEX reported quarterly operating income before depreciation of 360M,464M, 398M,564M or  1,786,000 for the TTM/ .6829 per share based recent reported share count of 2,615,000. Current EV per share is 3.50. The  stock is now trading at just over 5 times operating income less depreciation.

Market Cap: 9.68M, Enterprise Value: 7.39M

Price/Sales: 0.62, Price/Book: 0.87

ITEX was listed January 16 in the post "illiquid stocks for outsized returns?"

(JAKK) JAKKS Pacific... “JAKKS Pacific, Inc. designs, produces, and sells toys and consumer products in the United States and internationally. It provides traditional toys and electronics products.”

Market Cap: 245.98M, Enterprise Value: 214.17M

Price/Sales: 0.36, Price/Book: 1.16

Enterprise Value/Revenue: 0.32, Enterprise Value/EBITDA: 13.57 

52 Week Stock Return was negative, - 33. %

Aggressive share count reduction as the stock trades near or at historical lows based on sales and book to price.

Share count was 27.64M at the end of 2008. This was reduced by an impressive 21% to the current balance of 22.00M.

Note as the price dropped over the TTM from a 52 week high of 19.39 to yesterday’s opening price of 10.82,  management aggressively cannibalized their own company . Share count was reduced by 15% from the prior year count of 25.94M to 22.00M.

(KSS) KSS: Kohl's 

Kohls operates department stores in the USA. They have 1,146 store in 49 state along with the option to shopt in their online store. The company was founded in 1962.

KSS currently trades at attractive historical valuation based on P/B or P/S. They not only trade near their historical low on valuation but most optimistic valuation for their department store industry.

EV/EBIT is 9.68 and lowest in their industry. YOY the revenue increased by 5.5%. Enterprise / NTA less cash is at 1.35. KSS is near 52 week low and unjustly underperforming their industry peers based on the 52 week stock return excluding SHLD and JCP.

Management has wisely purchased back their stock at these cheap valuations.

October 2011 the shares outstanding were 264,000,000. February 2013 this balance was reduced by 8.5% to 241,500,000. The 2010 share count yearend balance of 305,000,000 was reduced by 15.50% to the current 241,500,000 share count.

Current dividend yield for this institutionally disliked mid cap value is 2.90%. Shorts as a percentage of the float is 7.90%.

Market Cap:11.20B, Enterprise Value:15.21B

Price/Sales:0.58 ,Price/Book:1.84
Enterprise Value/Revenue:0.79
Enterprise Value/EBITDA:5.59

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