Cash Bargains

The liquidation of TSCC was a strong reminder of the profit potential for stocks trading below cash less total liabilities. TSCC was very illiquid and trading between a low of $1 and a high of $1.11 this year. Some days no shares were traded. On Tuesday, February 10 the company announced they would liquidate. TSCC closed at $2.18 this Friday (02/13/08) up from the liquidation announcement date on Tuesday 02/11/08 at 1.06 for a +100% gain.

I was a shareholder over a year ago and grew impatient in the belief that they would burn through all the cash. This event got me thinking I should search for other cash bargains in this risky market.

I screened on the following rules coupled with other factors such as avoiding negative insider activity.

* (cash – total liabilities)>price

* current outstanding share count versus the average share count over the past 4 years. The stock screened needed a 94% of the average 4 year count.

* sga/reveune < .80 one of my measures of managment greed

important financial data on the list below

Symbol Price
GSIG $1.05
JOB $0.24
TELK $0.40
TGIS $0.65
CALL $0.72
HLYS $1.78
FNET $1.50
TRID $1.53
PTG $2.42
FORD $1.78
PRLS $1.82
ADPT $2.51

Quotes on the above symbols

GSI Group, Inc (GSIG)
PRICE = $1.05
SGA/REV 12months = .2014
NTA = $7.65 per share
Shares Outstanding/Average 4 years = .9940
Positive Insider Activity
GSI Group Gains Appeal on Activist Action
Major Holders

FORD (Forward Industries, Inc.) is the only one in the list reporting positive revenue growth for the YOY quarterly results. Now that is not an endorsement to purchase but they do have an interesting valuation. The revenue growth was 6.40% but margins were continuing accelerate down.

Institutional investors Dan Zeff ,Trinad Management and Barclays global investors
have been reducing their positions. But in this market it could also be the result of forced liquidation or the need to raise cash for redemptions. I have no idea.

From a cash bargain point of view the stock has a net cash position of $2.21per share versus the current price of $1.78. With 7,915,522 shares outstanding the value of 2.21 -1.78 = .43 in net cash premium or 3,403,674. So investors are immediately getting .43 per share to assume the risk of holding the stock. The gross margins have declined from 35.83% in 2005 to the current 20.17%. The only question will management sell, liquidate or reduce their SGA costs to return profitability. Operating margins were 23.79% (2005) and - negative 8.34% (2008). Cash burn has been reasonable and their liquidity is positive with a quick ratio of 10.08 and cash ratio of 8.29. So if this is part of a basket of other stocks selling below net cash the company looks like a reasonable bet if the position is part of a diversified portfolio and the position is built of weakness.

I will follow up with some more information but the current list has some interesting cash bargains

I have a position in JOB but unfortunately didn’t use my “greed factor” ratio, SGA/Revenue or review the golden parchute for the CEO.

1 comment:

Parker Bohn said...

Interesting, but nothing here for me.

Most of these companies are losing money, and my data shows that stocks of non-profitable companies do not fare well.

I certainly find it very hard to value a money-losing company.

The few profitable companies are heavily shorted, and you can be sure that shorters (while not always right) have done their homework. I don't want to oppose shorts unless I've done enough research to confidently say they are wrong.

I looked at GSIG for 20 minutes or so, but their accounting is completely messed up, and it actually looks like they have debt not cash, but its hard to tell as they are not current in filing.

I guess what I'm looking for is small-caps that are merely neglected, not actually taken out as trash.