Lazy Cheap Assets Purchased in the Tradition of Ben Graham’s Net Net Mean Reverting Thesis

Assets by definition are economic transactions with probable future economic benefits. These assets are reported at historical cost, not fair market value. My efforts for this post, uncover deeply discounted cheap corporate assets for its "probable future economic benefits". The Financial Accounting Standards Board (FASB),defines assets as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.

The process takes many twists and turns.So a pool of +10,000 stocks was reduced by multiple financial hurdles. For example it only included stocks with  Z scores over 2.99 and M Scores less than -2.22.This was to lessen the chance of near term bankruptcy caused by weak financials(Z score/Altman) and aggressive accrual accounting (M Score/ Beneish). Additional financial hurdles were included to improve potential mean reverting price behavior. Such as poor historical price returns, reduction of share count, debt reduction and other measures to be discussed.   

Enterprise value to non cash assets (EV/Noncash Assets) was empahsized.The thought with using EV/Noncash Assets, uncover ignored deep discounted bargain priced corporate assets further supported by other mean reverting and margin of safety attributes.

For this post when not indicated, 

Enterprise value(EV)= market capitalization + total liabilities (short and long term) - cash.

Non Cash Assets = total assets (tangible and intangible) - cash 
This post will continue to be updated over time to provide deeper analysis, ideas and investment thoughts. I wanted to start the post today.


For tonight I want to break the EV/Total non cash assets discovery process into 4 categories.
1) High ranking EV/Total non cash asset companies reporting profits.2)Outsized capital expenditures reported on the cash flow statement over the past 5 quarterly periods 3)Negative enterprise value below liquidation value 4)Negative enterprise value reporting profits 

All 4 categories are supported by strong financial position, clean share holder friendly capital structure and below market stock price returns for multiple periods.

Tonight the ideas below contain little or no details but will be updated. 

Negative enterprise value selling below current liquidation value:

Phoscan Chemical (PCCLF) : Candian symbol(FOS.TO)

Price = .25, Cash per share = .31, Book value per share = .77

Karnalyte Resources(KRLTF): Canadian symbol (KRN.TO)
Price = .76, Cash per share = 1.27, Book value per share = 3.18

Profitable Negative Enterprise Value:

Emerson Radio Corp(MSN):
Gencor Industries(GENC):
Balda AG (BALOF):
Automodular (AMZKF):
Ambassadors Group(EPAX): 

Click for quotes on the above 5 ideas

Enterprise value calculation for these 5 stocks include long term debt but exclude short term liabilities. 

Outsized capital expenditures reported on the cash flow statement over the past 5 quarterly periods relative to enterprise value:

TransGlobe Energy Corporation (TGA): 142.1M in total capital expenditures over the last 5 quarterly periods. 142.1M in capital expenditures compares favorably to the current enterprise value of 387.55M. Current enterprise value calculated with a market capitalization = 297.86M, Cash = 77.94M, total liabilities = 167,639,000 or 5.19 EV per share.Total EV/CE over the prior 5 periods is 5.19/1.90= 2.73

Codan Limited (CODAF):

Mitcham Industries. (MIND):

High ranking EV/Total non cash asset companies reporting profits:

ITEX: ITEX Corp Corp is 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.

Total non cash assets = 9,698,000 or 3.71 per share. EV/Non cash assets = 1.98/3.71 =.5336

The market capitalization is 7,410,000 (11/14/14) with an enterprise value of 3,737,000 using only non current liabilities. But for my analysis using EV/Noncash Assets I include all liabilities, current liabilities (1,442,000) and zero non current liabilities to derive an enterprise value of 5,179,000.

This high yielding nano capitalization has aggressively distributed returns to shareholders in the form of a high dividend and share buybacks.

Free cash flow for the TTM was 1,204,000 or .46 per share. The next 5 quarters starting 07/2013 to 07/2012 FCF was 2,989,000 or 1.14 per share. Shares outstanding are 2,614,000 for the MRQ. The MRQ share count was reduced from 3,604,000 for the period ending 07/2011. This was a 38% reduction of shares outstanding from 07/2011. Furthermore, a consistent quarterly .05 per share  dividend was distributed since 06/2013, .04 quarterly dividends from 12/2010.

Market Cap: 7.41M, Enterprise Value:  3.75M
Price/Sales (ttm):  0.55 , Price/Book (mrq):  0.62
Enterprise Value/Revenue:0.28 
Enterprise Value/EBITDA (ttm): 3.87
Revenue(ttm):13.54M ,Revenue Per Share (ttm):5.18
Qtrly Revenue Growth (yoy):  -12.90% 
Gross Profit (ttm):  5.23M, EBITDA (ttm):  968.00K
Total Cash (mrq):  3.67M , Total Cash Per Share (mrq): 1.41
Current Ratio (mrq): 3.70 , Book Value Per Share (mrq): 4.59
52-Week Change:  -26.17%
52-Week High: 5.10 , 52-Week Low: 2.65
Shares Outstanding:   2.60M , Float:  1.68M
% Held by Insiders:  47.18%

Trailing Annual Dividend Yield: 7.00%

Highway Holdings Limited (HIHO)

Trans World Entertainment Corporation (TWMC)

IEH Corporation (IEHC)


Anonymous said...

Thanks for this post, great information! Some interesting ideas here.

ShadowStock said...


Every serious value investor MUST visit vardebyran.wordpress.com … educational, videos, takes complex published academic value research makes it understandable/useful and shares actionable ideas


don’t let the blog’s native Swedish language deter your visit, a simple right mouse click converts into your desired language.

Magister Ludi said...

Hello Friends.

I tried to decipher the swedish blog. Nice pictures, no translate button. Next time.

The negative enterprise value companies are the most interesting to me. There is clearly value there. If nothing else cash. Unlocking it is another question. It seems to me that if all it took was discovery people would have bought in and profited by now. Is there any indicator that value might be unlocked in the near future?

Another question, why are they hoarding so much cash? This takes more detailed investigation. In the case of BDCV which you wrote on on seeking alpha, at least some of the commentators guessed that these guys were hoarding cash simply to pay themselves. Clearly, a problem.

There aren't a lot of activist investor/platforms down in small cap land. Seeking alpha, etc, might be another key as well. Getting the word out.

Thinley W said...

What screener do you use?

ShadowStock said...


Most of my work is custom built. So I will use BI tools, and other database software. Datawatch desktop (Modeler/Designer), Tableau, Spotfire). scrap the internet for data on edgar,yahoo,msn, etc.

You can also use gurufocus to screen the entire universe. But you will not get years of historical data from the bs, cf, is, shares outstanding, insider transactions, institutional holders.
You can accomplish so much if you get creative with existing free screeners. So make the effort, learn and improve with those free sources. Best John