Micro Cap Contrarian..Value Based Ideas

Each idea has unique value attributes. These stocks may be ugly, just not as ugly as their price performance.

Value attributes considered , discounted relative and historical valuations, aggressive share count reductions, current strong insider buying, real estate recorded below fair market value, large gross profits relative to enterprise value, outsize price under performance versus the market and industry.

GSE Systems Inc. (GVP) 1.70

GSE Systems provides a wide range of simulation and training solutions to the global energy (nuclear and non-nuclear) industry."The company has strategic alliances with All Russian Research Institute for Nuclear Power Plant Operation; Kurchatov Institute; Risk Engineering Ltd.; Samsung Electronics; Toyo Engineering Corporation; UNIS; and Westinghouse Electric Company LLC"

The following value attributes may interest investors for this tiny micro cap.  

Strong balance sheet (cash per share .98, BV = 1.70)

Significant stock under performance (one year -30%)


Share buybacks (share count reduction from 2010)

Private equity firm NGP Energy Technology Partners has 15% stake coupled with board seat

Historically low valuations for sales and book

Market Cap: 31.12M , Enterprise Value: 12.85M
Price/Sales: 0.64 , Price/Book:  1.00
Enterprise Value/Revenue:  0.27
Total Cash Per Share :  0.98, Total Debt :   0.00

Current Ratio :  2.52 ,Book Value Per Share:     1.70
52-Week Change: -19.82%
52-Week High:2.37 ,52-Week Low:   1.40

% Held by Insiders:35.70% , % Held by Institutions:30.20%

Ruby Tuesday, Inc. (RT) 5.41

Ruby Tuesday is a distressed restaurant chain founded in 1920. The company has 779 Ruby Tuesday and Lime Fresh locations.
RT is interesting for multiple reasons.

hated by Wall Street,
-32% 52 week return,
41% off 52 week high,
valuable real estate on the books below FMV, brand name,
low industry P/B at .79,
historically cheap for P/S and P/B,
share count reduced from  2010 to the most recent quarter,
strong operational mean reversion candidate.

There is an added margin of safety provided by their large owned real estate portfolio. 324 restaurants are owned by RT including the land and buildings. Restaurant Support Services Center in Maryville, Tennessee, is owned and opened in fiscal 1998. 
Today I was buying shares from 5.42 to 5.65. Investors may see an arbitrage opportunity. What I mean if the stock is oversold, although it may continue to get oversold. An opportunity RT moves off its historical low P/B and P/S is realistic. The negative news and depressed stock price less emphasized with any optimistic news. Wall Street’s negative view on the stock, coupled with negative company news such as the closing of 30 locations, posting last month a 7.8% plunge in comps for the quarter may have created an opportunity even if it’s a cigar butt.

Taken from Restaurant News:
Ruby Tuesday exploring strategic alternatives reported December, 2013.
Decmber 9, 2013 Restaurant news reported “Goldman Sachs likely helping casual-dining company seek leveraged buyout”
“According to unnamed sources in the report, the Maryville, Tenn.-based casual-dining chain is likely seeking a leveraged buyout. The report did not speculate on a timeframe.”

“The company said it had hired a consulting firm to identify and implement other cost-cutting measures. Ruby Tuesday expects to trim about $6 million in general and administrative expenses per year, starting in fiscal 2015.
The brand has also seen some executive changes. Earlier this year, board chairman Matthew Drapkin resigned and was replaced by Buettgen.”

“Luby's, Inc. was founded in 1947 in San Antonio, Texas. The Company was incorporated in Texas in 1959, with nine cafeterias in various locations, under the name Cafeterias, Inc. It is a multi-branded company operating in the restaurant industry and the contract food services industry. Its primary brands include Luby’s Cafeteria, Luby’s Culinary Contract Services, Cheeseburger in Paradise and Fuddrucker. Its other brands are Bob Luby’s Seafood, Luby’s, Etc. and Koo Koo Roo Chicken Bistro. As of November 4, 2013, it operated 179 restaurants located throughout the United States. These establishments are located in close proximity to retail centers, business developments and residential areas. Of the 179 restaurants, 86 are located on property that the Company’s own and 93 are located on leased premises. Two restaurants are located on the same property. As of November 4, 2013, it operated culinary contract services at 21 locations; 17 in the Houston, Texas area, 3 in Louisiana and 1 in Austin, Texas. Its Culinary Contract Services provides food service management to healthcare, educational and corporate dining facilities. Thirty franchise owners each own one restaurant. The remaining 19 franchise owners each own two to eight restaurants.”MSN Finance

Luby’s owns most its real-estate.

LUB owns the land and buildings on 70 Luby’s cafeteria and 16 Fuddrucker restaurants. Five owned other-use properties; one is used as a bake shop that supports the baked products for operating restaurants

Market Cap: 200.64M ,Enterprise Value:    226.23M
Price/Sales:    0.51 ,Price/Book:   1.15
Enterprise Value/Revenue:    0.57 ,Enterprise Value/EBITDA: 10.08
Qtrly Revenue Growth(yoy):     9.90%
Book Value Per Share :6.23
52-Week Change: 4.50%
52-Week High:   9.19 ,52-Week Low:     6.49

% Held by Insiders:   29.85% ,% Held by Institutions: 46.40%

Abercrombie amp; Fitch Co. (ANF) 35.41

Abercrombie Fitch is a specialty retailer, mall-based young women apparel. Currently trading at  EV/EBITDA of only 4.87. 52 week change is -29% with a historical low P/S value at .63.
Aggressive share count reduction from 2011 share count of 88,061,000 to the current balance of 77,776,000.

Market Cap: 2.67B , Enterprise Value: 2.65B
Price/Sales:   0.63 , Price/Book:   1.61
Enterprise Value/Revenue:   0.62 , Enterprise Value/EBITDA: 4.87
Profit Margin:  3.40% , Operating Margin: 7.10%
Return on Assets: 6.67%
Qtrly Revenue Growth: -11.70%

Cash Per Share:3.37 , Current Ratio:2.13

Book Value Per Share :  21.93
52-Week Change:-30.14%
52-Week High: 55.23 , 52-Week Low :31.14
% Held by Insiders:  2.09% , % Held by Institutions:  98.50%
Short % of Float: 20.90%

Annual Dividend Yield: 2.30% 

Asta Funding Inc. (ASFI) 8.25

Asta purchases distressed receivables primarily credit consumer debt.

TTM book value increased 15% as the 52 week stock price decline by -13%.  Furthermore , shareholder friendly management aggressively reduced share count for TTM. Next the stock trades at a large discount to a growing 13.09 book value. 

The current stock price is $8.25, 01/25/14. Share count dropped 8% from 09/12 balance of 14,077,650 to 12,952,150 09/13.
The strong FCF supports a small current 3.75% dividend yield.

Market Cap: 107.04M , Enterprise Value:   107.62M
Price/Book : 0.63 , Enterprise Value/EBITDA : 17.79
Profit Margin:    6.46% ,Operating Margin 13.22%
Qtrly Revenue Growth:     -17.40% ,
Total Cash: 35.18M , Cash Per Share :     2.71
Current Ratio :42.46 Book Value Per Share :13.09
Operating Cash Flow(ttm):19.08M ,Free Cash Flow (ttm):34.64M

52-Week Change:-12.61% 52-Week High : 9.80 , 52-Week Low:7.94

% Held by Insiders:41.28% ,% Held by Institutions:38.60%

5 Year Average Dividend Yield: 1.50% , Payout Ratio4:  38.00%

Spark Networks, Inc. (LOV) 6.05

Spark Networks (LOV)owns high cash generating online dating businesses. One entity Jdate.com is a stable high growth cash machine with a strong moat.

I first discovered and wrote about LOV way back January 2010 at 2.95 on Seeking Alpha. The stock has not performed as I expected. My LOV position was sold over a year ago.

LOV has received buyout offers. “Rumor has it” offers less than 6 won’t be considered. The current stock price is 6.05.

Last week’s continued strong insider from known value shop Osmium Partners is part of the rationale for today’s mention. Osmium was buying shares for 6.10, 6.12, 6.16. Osmium now owns 16%.They may take a more active role as a board member.


Anonymous said...

Personally I am not a fan of Ruby Tuesday. I think it is headed downhill. One thing that you pointed out is that wall start doesn't like it. That in itself is a problem for RT. Many stocks rise and fall simply on the perception of traders and rather or not they "like" that particular stock.

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Jonah Garnick said...

Something to note is that 9 million dollars of its assets are goodwill (which can't exactly be liquidated).

Jonah Garnick said...

Something to note is that 9 million dollars of Spark Network's assets are goodwill (which can't exactly be liquidated).

Jonah Garnick said...

Something to note is that 9 million dollars worth of Spark Networks' assets is goodwill (which can't exactly be liquidated easily)

ShadowStock said...

Hi Blake

I agree at this time RT is more of a cigar butt. Yet, a move to 7.00 could provide an easy 25 or 30% return. Additionally, the 500-600 million real estate portfolio coupled with operational improvements should push the stock much higher.

Regards John

ShadowStock said...

Hi Jonah

Jdate.com is a powerful free cash generator, because of the large membership fees from Jdate. Jdate has a near monopoly on that segment. Cash flow from Jdate is allocated by investing in other online dating segments. Those segments can’t charge nearly the same membership fees. Those members have other choices.

Assets such as Jdate.com have little tangible value.

Regards, John