Monday, 07 March 2011 19:59

Four Profitable, Growing Companies Trading Within 20% of NCAV

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We can use the stock screener to find companies whose current assets less total liabilities are greater than 80% of its market cap, that are also profitable, growing, and traded on U.S. exchanges. To do this, we set up the following screen:

Exchange Country
Total Current Assets (I) - Total Liabilities (I)
Market capitalization * 0.8
Earnings per Share, Normalized, Excluding Extraordinary Items, Avg. Diluted Shares Outstanding-TTM
Exchange Traded On
"Over The Counter"
Revenue Change-TTM over TTM

As of 3/6/2011, this screen produced 35 results. However, we can see from the year over year revenue growth column, that is included by default, that many of the companies returned by this screen have had inconsistent growth (as their YoY growth is negative while TTM/TTM growth is positive). We can restrict our screen to companies that have had more reliable growth by adding the condition:

Revenue Change-year over year

There are a few interesting companies among the 20 returned by this screen. Among them are:

Company Name
CSP Inc.
PC Connection, Inc.
Ingram Micro Inc.
Tuesday Morning Corporation

CSP Inc. (CSPI) is a high-performance computing company that appears to be straddling the "Net-Net" barrier (trading at a market cap of less than its current assets less its total liabilities). However, unlike most net-net stocks, it seems to have been profitable for four consecutive quarters. As per a Seeking Alpha article by Frank Voisin earlier this month, there are significant risks to CSP's top line. However, it is still relatively uncommon to find a company that has >$50M of revenue, trades on the Nasdaq, and has been profitable for four consecutive quarters, at the net-net level. I am not purchasing CSPI yet but may buy if its valuation drops more substantially below NCAV.

PC Connection, Inc. (PCCC) is another technology company that appears to be attractively valued. They are trading at an EV/EBITDA ratio of less than 5 and an EV/Revenue ratio of 0.1. This is despite posting >25% YoY revenue growth and having almost $2B of revenue. They are an IT products distributor that was profitable in 2008 and only marginally unprofitable in 2009. Their strong balance sheet, past performance, and recent growth demonstrates that they have both the ability to survive an economic downturn while being able to post strong results even in a modest recovery. I am placing a buy order for a small number of shares at an 8.60 limit price and may modify my order and/or increase my position over time.

Ingram Micro, Inc. (IM) is another IT products distributor with a healthy balance sheet. They have ~$3B of net tangible assets and a market capitalization of $3.24B. In addition, they have an EV/Sales ratio of 0.8x and an EV/EBITDA ratio of less than 5. However, in 2009, when companies were postponing their IT investments, Ingram reported a net loss of $394M, or over 1% of sales. This contrasts with PC Connection's loss of only $1.2M, or less than 0.1% of their sales of >$1.5B. I am placing my bet on PC Connection but, if I were taking a larger position in the IT distribution space, I could see splitting the bet across both of these two companies.

Tuesday Morning Corporation (TUES) is a retailer trading a 4.8x EV/EBITDA ratio. Their performance appears to be even more seasonal than most retailers. In 2010, they reported losses in Q1 and Q3 that were more than offset by a strong Q4, which saw revenues of $279M, compared to revenue of ~$172M in each of Q1 and Q3. I think there is just too much uncertainty about the cufrent recovery to be able to place a bet on whether 2011 will see a strong holiday season. While I have no intention of accumulating TUES now, I may reconsider as we get closer to the holiday season.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PCCC over the next 72 hours.


Last modified on Thursday, 10 March 2011 20:14
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