Ignored Critical Valuation Attributes

Cache Inc. (CACH)

Price = 3.93

Enterprise value = 58.777 million

Market capitalization = 50.19 million

Part of the CACH valuation story is debt reduction, share count reduction, improved sales to enterprise value all dramatically improved from 2005 coupled with mean reversion (current stock price below 2006), strong balance sheet and flat YOY revenue change.

Cache has the most advantageous valuation in the apparel industry based on EV/Sales = .27, GP/EV = 1.43 but below GP(gross profit)the story gets ugly. But given the drastically improved capital structure over several years may be setting them up for much better times in the near future. These corporate action may have attracted Michael Price to the stock with a position greater the 10% of the shares outstanding.

Business description from Yahoo

“Cache, Inc. operates as a mall-based specialty retailer of women?s lifestyle sportswear and dresses primarily in the United States. The company offers eveningwear; casual and daytime sportswear, including tops, bottoms, and dresses; and accessories, such as jewelry, belts, and handbags under the Cache brand. It also offers its products online through its Web site, cache.com. As of May 12, 2010, the company operated 285 Cache and Cache Luxe stores in 43 states, Puerto Rico, and the U.S. Virgin Islands. Cache, Inc. was founded in 1975 and is headquartered in New York, New York.”

The last year of profitability was 2007.But there are metrics where the valuation has improved significantly but the stock price has not fairly represented the current and future intrinsic value.

Total liabilities were reduced 31% from a 2005 year end balance of 51,888,000 to the current 35,822,000 as of October 2010.The stock price was $17.32 on December 2005.

Significant improvement in valuation using sales; 2005 P/S 1, 2006 P/S 1.5

Currently the P/S is .23

Share count balance has been reduced from the 2005 balance compared to TTM. Shares outstanding for the period ending 2005 was 16,150,000 reduced to 12,768,000 TTM.

Recently famed value investor Michael F. Price managing partner of MFP has been building a large position greater than 10% of shares outstanding.

More ideas: meeting these under followed value creating attributes

1) Total debt reduction from 2007 to TTM

2) Strong balance sheet using the ratio of Enterprise value/Market Capitalzation > 1.50

3) Reduction of total shares outstanding from 2006 versus the TTM

4)Current price less than the 2006 share price.

5) Total debt reduction from 2005 to TTM

6) Current SGA/Revenue ratio less than the average of this ratio over ther past 4 years.

7) Enterprise value less than 100 million.

CNTY (Century Casinos)
Resorts & Casinos
Current Price = $2.37

LOV (Spark Networks)
Consumer Services
Current Price = $2.91

UTMD (Medical Instruments & Supplies)
Utah Medical Product
Current Price = $29.18

MASC (Material Sciences)
Industrial Equipment & Components
Current Price = $4.99

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Anonymous said...

all companies have these good valuations before go out of business. The price to sales of gm and kmart was great just before they went chapter 11

ShadowStock said...

Those are valid point but the above stocks have additional benefits.

MASC has a current earnings yield of 4.78% OI/EV, 2.69 per share in cash, EV< MC

LOV is generating over 10% in cash yield recently refused a recent takeover offer @ 3.50, .62 per share in cash and huge economic moat with JDate.com

CNTY 16% revenue growth. 1.04 per share in cash, profitable

UTMD OI/EV = 10.50%, 5.91 per share in cash,

CACH ; price is reasonable and mgmt has been making improvements in this difficult environment.

Good Luck