4/27/2014

Value Creation Ignored by Mr. Market

I wanted to examine management’s capital allocating behavior demonstrating future economic confidence. This indirect approach MAY help find overlooked opportunities, leading to higher ROIC, earnings yield and stock price.

For this project, “ Value Creation Ignored by Mr. Market” I took over 3 years of data. Then drilled into companies building per share book value, reducing long term debt, positive YOY revenue growth, increasing gross margins, reducing share count, increasing cash balance. Companies mentioned in this or future post on the topic may not meet every criteria, I will point out selection rationale.

Try starting with companies building book value per share over the past 3 years without correlated price appreciation. An increasing BV per share results from any or all of the following, reduced outstanding share count, debt reduction, assets growing faster than debt, asset growth from increased sales, increased margins, reduced expenses, expanding operating margins. Then if wanted reduce further by excluding companies based on price to sales, earnings or gross profit yield, market capitalization or stock price change, ROIC, financial strength, industry, insider activity, etc.


I will expand in multiple future posts with specific ideas and methods to uncover “building Value Ignored by Mr. Market”. 

A few potential ideas 


Ballantyne Strong, Inc (BTN): Ballantyne Strong, Inc. designs, integrates, and installs technology solutions for retail, financial, government, and cinema markets worldwide. The company operates in two segments, Systems Integration and Managed Services.The company was founded in 1932 and is headquartered in Omaha, Nebraska. Source Yahoo Finance














Current price = $4.62 ; EV Per share = $2.64

Book value per share 2010 = 2.99, price per share 2010 month end  = $7.77

Current Book value is $4.74 and price of $4.62 note that cash per share is $2.06 or 28.79M. 





















March 14, 2014: Gary L. Cavey, President and CEO of Ballantyne Strong, commented on the most recent quarterly results, “We had a strong finish to 2013 driven by several large orders for digital projectors in our international markets. While the digital conversion cycle is largely complete, we expect the cinema market to continue to be a source of revenues driven by future product upgrade cycles, ongoing parts and replacement orders, and the development of additional managed services relationships with our theatre customers. 
“We have made good progress with the integration of Convergent Media Systems. We are in the process of strengthening Convergent’s business development capabilities including adding more experienced sales people in our targeted vertical markets and bringing on a new VP of sales and marketing. The sales cycle is very long for digital media projects and it will take some time to build our sales pipeline, but we are excited about the long-term growth opportunities in this business. 
“We continue to look for new product opportunities that will enable us to leverage our existing infrastructure. With this strategy in mind, we have finalized an agreement with VIASS (Video Intelligence as a Service) to become a value-added reseller of cloud-based video security solutions. We believe the installation of video security solutions will create additional maintenance and monitoring contract opportunities for our Network Operations Centers. We anticipate that this new product line will become a meaningful contributor to our revenue mix during the second half of 2014,” said Mr. Cavey.

52-Week Change:3.13% ,Enterprise Value/Revenue: 0.36
Enterprise Value/EBITDA: 12.07 ,Gross Profit: 16.84M         

Other ideas,need time to post information are 

Hurco Companies Inc. (HURC)
Synergetics USA, Inc. (SURG)
Pep Boys - Manny, Moe & Jack (PBY)
Command Security Corp. (MOC)  

Click for quotes on all stocks above

3 comments:

Saj Karsan said...

Very nice idea on screening. What data source do you use to run something like this?

ShadowStock said...

Thanks!

BTW anyone interested in a real deep education in value investing then go to his (Saj Karasan) must visit site barelkarsan.com or SeekingAlpha. Book reviews,transcripts,ideas, in depth explanations of stock ideas past and present.

Saj I use the following software. iMacros (imacros.net), to scrap the internet for data from MSN, Yahoo ,Edgar and more. Once I have my data prepared then on to BI tools like Qlikview (free for desktop), Tableau (Free for public) and Datawatch desktop. Still use Access, Excel and other tools when needed.

For example right now looking at symbol UUU Universal Security Instruments. It was found bringing my data into datawatch desktop then using a scatter plot for this example to discover new ideas. UUU is an outlier in terms of aggressive debt reduction over last 4 or 5 years, slight reduction in share count, gross margin expansions over that period and now the stock price is trading at 5 years low. It also has an interesting profitable long term investment on the balance sheet,Hong Kong. NO POSITION but may mention if time permits tonight.

Long story short ... scraping the internet for data then data discovery using the tools of your choice then applying your knowledge of investing.
Oh .. the insider data in this post was taken from Yahoo finance.

John

Saj Karsan said...

Thanks, shadow. It sounds like you've got a pretty unique system for uncovering value.