Deep Value Micro Caps with Strong Historical and Recent Insider Buying

Below are 6 ideas found using insider buying activity for the week ending 08/11/17.

Update after post, Monday (08/14/17) Director of CTHR purchased 25,681 shares for $22,837 at $.89 per share. Monday (08/14/17) CEO of PRSS purchased 19,901 shares for $36,219 at $1.82 per share


Nano Cap = TURN, PRSS,CTHR:  Micro Cap = FRSH,FRGI: Small Cap = REV

click for quotes on all 6 stocks

180 Degree Capital (TURN): is a publicly traded registered closed-end fund. It focuses on undervalued small, publicly traded companies with significant turnaround potential. Further, 180 Degree provides value-added through constructive activism pushing a positive price reversal.

Implementation of their new strategy continues with overhead expense reductions, conversion of private holdings to public companies, and investments in public deep value micro cap public companies. The NAV = $2.43 versus the current stock price of $1.51. NAV increased two consecutive quarters. This realized sequential improvement is the first time in over five years.

CEO’s recent comment. “This is a marathon, not a sprint. While we are pleased with our start, our work is just beginning. As I have said before, my primary goal as CEO of 180 is to substantially increase our share price. We aren’t there yet, but we are on our way.”


CEO Kevin Rendino purchased 19,170 shares for $31,858 or an average price of $1.66 from 08/03/17 to 08/09/17. YTD 2017 139,932 shares purchased for $209,292 or average per share price of $1.49.  During 2016 233,735 shares purchased for $363,871 or an average price of $1.56.


My latest post on 180 Degree Capital (TURN) was on 04/02/17 provides additional thoughts. “Unique Opportunity Knocks with 180 Degree Capital (TURN)”

CafePress (PRSS) is an online retailer selling a variety of customized and personalized products.
Year to date PRSS is down -38%. The Market Cap is 30.05M, Enterprise Value = .60M, Cash per share = 1.86, P/S =  .30, PB = .79 with no debt. Current price is $1.83.The price and enterprise value at historical low along with EV/Revenue, Price/TB,decling shares outstanding since 2013 and total liablities.


Cash Rich, Market Ignored Restructuring Opportunity, CafePress (PRSS) is my latest (04/17/17) blog post on PRSS.

YTD 2017 the CEO purchased 132,915 shares for $274,063 at an average price of $2.06. Famed micro-cap value investor Lloyd Miller 209,397 shares for $542,444 at an average price of $2.59.

During 2016 CEO purchased 82,885 shares for $251,349 or $3.03 per share. Lloyd Miller acquired 252,423 shares for $767,746 or 3.03 per share. 

Throughout 2105 Lloyd acquired 193,195 shares for $765,252 or $3.96 per share along with additional buying from the CEO and CMO.

Charles Colvard (CTHR): manfacture, markets and distributes moissanite jewels, finished jewelry for sale in the international jewelry market.
Price near 5 year low, P/B near 8 year low, shares outstanding stable over ten years.

Overlooked and Ignored Deep Value Nano Cap; Charles and Colvard (CTHR) is my latest (02/01/17) blog post on CTHR.

Papa Murphy's Holdings (FRSH)
Renowned value investors Michael Price purchased 492,398 shares for $2,031,652 at an average price of $4.13 during 2017. Price is near 5 year low, EV/Revenue near all time low.

Fiesta Restaurant (FRGI)

Fiesta Restaurant owns, operates, and franchises fast-casual restaurants. It operates its fast-casual restaurants under the Pollo Tropical and Taco Cabana names.

Price, enterprise value,EV/Revenue and P/TB near or at 5 year low.

Revlon (REV):

Revlon is a cosmetics company.It manufactures and sells cosmetics, hair color, beauty tools, fragrances, skincare, deodorants and personal care products.

Revlon is not a micro cap but the unusual and aggressive insider buying by major shareholder Ron Perlman deserves a closer look.
Ron Perlman is Revlon’s majority shareholder and continues to buy large blocks of shares as the stock declines in price and financial strength. Perlman has been adding to his stake for several years but more pronounced during 2017.  Perlman purchased 3,259,515 shares for $65,622,416 at an average price per share of $20.13 during 2017. Revlon continues issuing debt, coupled with a negative Sloan ratio that indicates aggressive accrual accounting with poor interest coverage. Current market price is $18.30 versus a 52-week price range of $15.60 – $37.96. Aggressive buying by Perlman ($65,622,416 during 2017) may be a signal the company goes private, sold or deep undervaluation. The growing debt per share is less worrisome with Perlman’s estimated wealth of $12.2 billion. Perlman can easily step in and with that knowledge understands the stock is worth more than the current price. Interested investors need to wait as shares short continues to rise as operation fixes take time.

Ron Perelman owns around 80% of the stock leaving 20% in the public float. Additionally, concentrated value investor Chris Mittleman added 22,111 shares for the quarter ending 06/30/17 to increase his position to 2,304,282 shares or 4.38% of TSO.

Volt, Deeply Ignored Staffing Company with a Tremendous Turn Around Opportunity

Volt Information Sciences (VISI) provides staffing, outsourcing, and IT services. The company's business segments are staffing services (North American, International, Technology Outsourcing) and Corporate/Other.Founded in 1950 by the Shaw family, currently own ~20% of shares outstanding. Volt is the first public staffing company.

This potential outsized opportunity is based on multiple evolving factors.

Opportunties:

 * The 21 trailing month market value dropped -55.92%. This contrasts with a period of multiple operational and financial improvements. These contrasting attributes only strengthen Volt's (VISI) case for short and long term mean reversion. The current market price is $3.65 per share or 76.39M.

During the trailing 21-month period, these are a few specific improvements. The sale of non-core businesses, management's focus and realization of higher margins. Material investment in information technology to improve competitive position, operations and reduce costs. System implementation completed this quarter. Twenty months ago a new turnaround specialist and CEO (Michael Dean ) recruited with Board level changes forced by activist investors. Additionally, this quarter received a long awaited tax refund payment used to pay down debt. VISI sits on  146M federal NOL and 55M in other federal tax credits.

 * Positive macro industry trends exist for temporary staffing. Further, the industry's fragmented attributes offer future MA activity for potential company sale of company or growth after a fully realized turnaround. Note today (07/31/17) staffing company CDI received a go private deal, up 33% today on news. Also, an engineering'sindustry study reported 2% of the workforce is temp. But, the current 2% workforce is a fraction of future years estimates of 10% based on macroeconomics and political trends. The trend higher for a fractionalized work force is inevitable.
Volt's temporary staffing business is healthy and majority of total revenues. Technology and Engineering's permanent staffing business drags on its profitable progress. Additionally, opportunities exist if they focus exclusively on temp staffing and sell permanent placement business.

* The current market price of $3.65 or 76 million market capitalization / 147M enterprise value does not fairly handicap management's value unlocking activities, low business risk profile, capital light requirements and the higher probabilistic future value. Also, VISI is historical and relative valuation cheap. (more on this covered below).

* Management sits on an exceptional company requiring only modest improvements to grow its free cash flow with existing large revenue base. A small 1% improvement in operational margins is reachable. That change will indeed impact free cash flow and its tiny 76M market value with just 14.19M shares in the public float.

* Additional positive factors to consider, ~ 30% held by insiders with founding family at ~20% coupled with proactive/activist shareholders (Glacier Peak Capital as one example). This ownership structure will continue pushing market value enhancements. Moreover, the lack of analyst coverage is not helping the stock price. VISI TTM revenue of 1.289 Billion, 61.70 revenue per share deserves and should see future coverage. Lastly, positive 2016 and 2015 insider activity with neutral 2017.





Notable enhancing historical valuation attributes:
Strong and improving capital structure with a stable share count and debt reduction. Gross margin improvements and a stock that now trades at a 75% of the TTM gross profit. Another interesting ratio is EV/MC. My guess this should stay stable. But the market value dropped more than enterprise value may signal market overreaction.  Lastly, improving F score, asset turnover, and deep valuation discounts for EV/GP and EV/Revenue.
 

Relative Valuation

Click for quotes on the 18 industry competitors included in the table below (ZPIN,MHH,KFY,TBI,KELYA,BBSI,HSII,KELYB,DLHC,BGSF,JOB,EGL,CCRN,KFRC,RECN,CDI,HSON,VISI,STAF,DHX,)

Volt ranks at or near the lowest for the following. Percentage above 52 low, EV/Sales, shares short as percentage of float, market and enterprise value drop. High F score of 6, insider ownership, percentage off 52 high, financial strength. These metrics support the large discount thesis to the 18 industry staffing peers.

Long term activist shareholders with incentivzed insider ownership to turn around the company.

Risks: 

* Many uncertainties exist such as continued falling revenues, declining operational margins, growing losses. These negatives will impact liquidity and flexibility to buy back shares if operations don't stabilize over the next few quarters. In addition, the longer time to realize profitability and stability significantly reduces the present value of VISI and confidence of shareholders.






 Long: VISI

Patriot Transportation is a Forgotten Undervalued Spin-off

Patriot Transportation (PATI) is a top tier regional tank truck hauler servicing the southeastern United States. FRP Holdings spun-off Patriot Transportation during January 2015 and began trading under the symbol PATI. However, they began as a premier bulk tank carrier in 1962 under the name Florida Rock and Tank Lines. Florida Rock and Tank Lines continues its growth as an industry leader in the southeastern United States, transporting petroleum and other liquid and dry bulk commodities in tank trucks.

Patriot Transportation (PATI) operates under their one subsidiary, Florida Rock and Tank Line. They specialize in hauling petroleum (82% of revenue), dry bulk and other liquid commodities(18% of revenue).

The tank lines transportation business is highly fragmented. This attribute offers PATI exciting growth opportunities with its strong balance sheet, free cash flow, clean capital structure and committed bank financing to benefit from industry consolidation. Ranked #12 in US by revenue per the 2013 Bulk Transporter's Gross Revenue Report. Number one of the top 3 tank truck haulers in the markets they generate 66% of their revenues.

 
   Current Valuation:

Patriot Transportation is a value outlier based on asset reproduction and earnings power. They have 21 terminals, 9 satellite locations,488 Tractors and 563 Trailers located in Florida, Georgia, North Carolina, South Carolina, Alabama, and Tennessee. Terminals owned in Florida (Jacksonville, Panama City, Pensacola, Tampa, White Springs) Georgia (Albany, Augusta, Bainbridge, Columbus, Doraville, Macon) and Tennessee (Chattanooga, Knoxville). Additionally, the company owns 468 tractors and 561 tank trailers. During fiscal 2016, the Company purchased 78 new tractors and 24 trailers. Further, its current financial position reports 6.87M cash, 6.44M current account receivables, for a total current asset value of 17.95M. Gross PPE of 102.19M or net value of 41. 38M.The total equity value is 45.82M or $13.89 per share with no debt. 

Insider buying from original founders of Florida Rock / Patriot Transportation, John Baker. The Baker family owns 37% of PATI. Edward L. Baker 5.14%, John D. Baker (Chairman) 13.39%, Thompson S. Baker (President and CEO)5.69%, Edward L Baker (Chairman Emeritus) 1.227%.
John D. Baker (Chairman) purchased 10,000 shares during June 2017 for $179,662 or 17.97 per share. During 2016 John D Baker purchased 6,233 shares for $121,712 or 19.53 per share.

Value institutions holding shares at higher prices are Royce Associates, PVAM Perlus Microcap Fund, T. Rowe Price Associates, Hyman Charles D, Willis Investment Counsel, Rutabaga Capital, Cove Street, and Teton Advisors. 

Nine of their top 10 largest volume customers serviced over 10 consecutive years. During the past five years' annual revenues grew 54.60% with these loyal customers. This supported by consistent double digit return on capital, TTM ROIC is 12.17%. Trading near tangible book value recorded below fair market value, EV/EBIT = 7.18, and EV/revenue of .45.

Historical Value Improvements

The stock is down -18% over the past 52 weeks. Off its 52 high of $27.32 versus the $17.95 closing price on 07/14/17. Revenues decreased slightly year over year. But, profits reported with growing net cash, equity and reduction of liabilities and enterprise value to revenue and EBITDA.




Trucking Industry Comparisons (18 Companies)

I ran a screen for companies in the trucking industry and excluded OTC listed. My final but not perfect industry peer group is 18 companies. Many competitors are smaller private and not reviewed.

After doing the industry comparisons, Patriot Transportation is a strong value outlier with the these attributes. Ranked highest for financial strength, lowest for EV/EBITDA at 3. Percentage above historical low, P/Book, EV/Sales, EV/EBITDA ranked lowest. PATI has the smallest market capitalization, enterprise value, and short as a percentage of the float. The negative 18% stock return ranked 3rd lowest in the group.



Risks:

Thinly traded with no Wall Street Coverage

Loss of major customers from under biding by a larger competitor or bankruptcy.

Lack of Wall Street Coverage.

A continued labor shortage of available qualified drivers.

The increasing costs of worker's health care, fuel prices, insurance, equipment, taxes, tolls and regulations.

Reduced demand for hauling petroleum products from overcapacity or industry / economic trends.

Liabilities from environmental costs related to the hazardous materials delivered.




Opportunties:

Future acquisitions coupled with Wall Street coverage and continued profitable growth. 



Long: PATI