Monday, July 4

Micro Cap Value Discovery

This post began with a focus on uncovering value by focusing on capital structure improvements with no equivalent intrinsic value market price change.

The search began by using the ratio of enterprise value/market capitalization. Then the period from 2013 to the most recent quarter selected. Companies reducing enterprise value by increasing cash or reducing liabilities with no market recognition of value improvements included. So if the 2013 EV/MC ratio is greater than most recent quarter EV/MC these ideas selected. Further, I eliminated companies increasing shares outstanding. Short as a percentage of float greater than 5% filtered out. The average stock price decline for the 6 stocks selected was -31% over the ~3 year period. Additionally, stocks included had large discounts to its historical valuations using P/B, EV/Sales, and other value criteria.

Click for the quotes on the stocks below: STLY,CPIX,ONVI,MSN,PCO,RAIL

Stanley Furniture Company, Inc. (STLY) “is engaged in the design, marketing and sourcing resource in the upscale segment of the wood residential furniture market. Its products include dining, bedroom, living room, home office, home entertainment, and accent items.” Source Morningstar
Stanley Furniture is a financially strong transformation play. The most recent quarter reported a decline in sales and losses as expected. They wait longer than expected for new product introductions and new production factory in Vietnam.  STLY is transforming from a domestic manufacturer to a marketing, distribution with overseas sourcing.

During the first quarter STLY surrendered its corporate life insurance policies. The company received 22.40 million in tax free cash due to 23.40 million in net operating loss carry forward. STLY sells for an enterprise value of $.74 or 10.87 million. This compares favorably to TTM gross profit of 13.243 million or EV/GP of .82. See the table below for multiple margin of safety attributes EV/Revenue of .20, P/TB of .83.

Cumberland Pharmaceuticals (CPIX): “is a specialty pharmaceutical company. It is engaged in the acquisition, development and commercialization of branded prescription products. Its target markets are hospital acute care and gastroenterology.” Source Morningstar

Onvia Inc. (ONVI): “is a provider of business information and research solutions that help companies plans, markets and sells to government agencies throughout the United States.” Source Morningstar

FreightCar America Inc. (RAIL) :”is a manufacturer of aluminum-bodied railcars in North America. The Company specializes in production of coal cars.” Source Morningstar

RAIL is extremely cheap using any measure. Net current asset value near current market value, price to tangible book value is .73, EV/EBIT 1.20, no change in share outstanding back to 2013, EV/Revenue .10 and TTM gross profit of 93.93M versus an enterprise value of 83.71M.

Negative Enterprise Value Idea

Pendrell Corporation (PCO) :”through its subsidiary, invests, acquires and develops businesses with technologies that are protected by intellectual property (IP) rights.”

PCO trades below net cash. Current market price is $.51 per share versus .63 in net cash. Negative enterprise value of 30.36M per Yahoo finance, NOLs over 2 billion, valuable patents, PCO lost 2012 suit against Apple, filed appeal. No pensions or debt with head count reduced to 13 from 73 in 2013. Executive chairman Craig McCaw is worth 2 billion.

Negative Enterprise Value Idea

Emerson Radio Corp. (MSN) :”designs, sources, imports and markets housewares and consumer electronic products and licenses its trademarks to others for products domestically and internationally.” Source Morningstar

Monday, June 13

Depressed Micro Cap Value Stocks

Note,  this post will be completed/updated throughout the entire week. Companies and certain metrics listed tonight to give  an early start to dig deeper before completed.
The watch list below selected after an exhaustive search. Each company offers unique attributes that warrants consideration. Financial metrics such as valuable real estate, negative enterprise value, trading near its low 5 and 10 year price in a long term growth industry, historical and relative low valuations. But, the entire list shares horrible stock price performance. The average aggregate return for the entire group over the past 52 weeks is -51.46%.

Click for quotes on stocks below

Avid Technology Inc  (AVID) " provides technology products, solutions and services that enable the creation and monetization of audio and video content. It develops, markets, sells, and supports software and hardware for digital media content production." Source Morningstar

The post will be updated and completed during the week ending 06/18/16. Posted symbols tonight to begin the process.

Saturday, June 4

Insider Micro Cap Value Buying for the Week ending 06/03/16

Click for quotes on all stocks below

Favorable financial metrics;

AAOI Applied Optoelectronics,: YOY quarterly revenue growth is 66.80%, value institutions Kennedy Capital added 62,727  shares for the quarter ending 03/31/16. Royce added 2,500 shares

ABCO The Advisory Board Co :YOY qtrly revenue growth is 11.90%, enterprise value dropped 18.67% since 2014. EV/Revenue is 2.34 down from 2014 EV/Revenue of 4.44 , value institutions Gotham added 11,998  shares for the quarter ending 03/31/16. Polar added 262,600 shares

ALEX Alexander Baldwin

ASNA Ascena Retail Group:YOY qtrly revenue growth is 45.10%, value institutions Peak6 added 212,870 shares for the quarter ending 03/31/16.Buckingham added 590,000 shares

AXAS Abraxas Petroleum: stable share count since 2014, enterprise value dropped 30.67% from 2014, value institution Dalton added 11,998 shares for the quarter ending 03/31/16

CWEI Clayton Williams Energy: Stable share count since 2014, enterprise value dropped 28.02% since 2014, P/TB 1.20 versus 2.82 P/TB for 2013, value institution Dalton added 33,460  shares for the quarter ending 03/31/16

Saturday, May 28

Spark Networks (LOV): An Overlooked Investment with Asymmetric Expected Outsize Gains

Spark Networks (LOV) is a mean reversion candidate, potential enhanced gains from a full turnaround.The risk reward probabilities look favorable at current price of $1.58 per share.  

Spark Networks is an online dating company with two core properties, and JSwipe acquired  for 7M at end of 2015 to reach a younger mobile friendly demographic in its Jewish network. JSwipe with 500,000 users offers profitable growth opportunities. 

The below graphic of Spark's properties taken from the May 1st investor presentation 

Summarized rationale to support the current market's discount thesis.

Historical valuations are at 10 year lows for EV/Revenue, EV/GP, P/B and enterprise value. 

The 52 week stock return is a negative -52%, enterprise value down -125% from 2012, -74% from 2013.

Spark (LOV) trades at a deep valuation discount to prior online dating acquisitions.Plenty of Fish with 75 employees acquired for 575M by Match.COM during July 2105. The valuation was 5.75 times revenue. LOV trades at less than 2 times gross profit or .9 EV to sales. 

Large expanding 2.40 billion USA online dating market. Spark is a top 5 participant. 

Osmium (value investment firm)initiated a proxy fight at the end 2014 to remove management. New CEO Michael Egan started during 2015 along with other technology competent managers. CEO Michael Egan spent the past dozen years as a senior executive at Internet Brands and Yahoo.

An aggressive new strategic focus implemented this quarter; costs reductions to improve contribution margins and free cash flow. Operational cost savings of 4.50M annually coupled with reduction of direct marketing expense. Technology improvements supporting a lower touch have enabled Spark to lower headcount by close to 40%. “ChristianMingle direct marketing investment will be around $1 million to $1.5 million per quarter moving forward, this equates to a $3 million to $3.5 million savings per quarter compared to their Q1 Christian Network's direct marketing investment.” The low spending is likely to translate into meaningful profits. 

Largest shareholder Osmium Partners has a board seat. Aggressive recent insider buying at higher prices by concentrated micro cap value investor Miller Lloyd.

Last week Miller Lloyd purchased 20,303 shares at $2.20 adding to his existing 787,542 shares held. Other value investors holding shares, Robotti Robert, Royce , Whitney Tilson and Potomac Capital

The  legacy technology stack is outmoded.Hence the prior 12 month technology investment focused on expanding their freemium lightweight mobile applications. The recent JSwipe acquisition offers a great opportunity to create additional improved mobile applications to up sell customers. 
During the recent earnings call CEO Eagan responded to a question on strategic alternatives. We have retained a financial advisor and we're still speaking with them about alternatives, but at this time we're not really in a place to state anything explicitly”.

Price = 1.58 
Market Cap: 40.90M,  Enterprise Value:36.82M
Price/Book (mrq): 2.74 , Enterprise Value/Revenue (ttm): .83
Revenue (ttm):44.51M , Revenue Per Share (ttm):1.75
Qtrly Revenue Growth (yoy): -26.90%
Gross Profit (ttm): 24.06M
Total Cash (mrq):4.08M  Total Cash Per Share (mrq): .16
Total Debt (mrq): 0.00
Current Ratio (mrq):0.52 , Book Value Per Share (mrq):0.61
52-Week Change: -50.31%
52-Week High (Dec 18, 2015): 4.14 , 52-Week Low (May 27, 2016):1.53
Shares Outstanding: 25.89M , Float: 11.42M
% Held by Insiders:23.57% , % Held by Institutions:47.90%

Short % of Float: 2.54%

Warning: Yes Spark (LOV) offers an asymmetric upside reward. But the company is financially weak. One concern is that if subscribers are lost the value of the brand is damaged, it's progressively less desirable to current and future subscribers. The shift to more mobile technology and marketing cuts presents risk. Additionally, negative Z score, weak sloan ratio,  and F score are not to be ignored. 

Useful graphics taken from the recent Spark's Investor's Presentation on May 1st 2016 available in the 8k. 

Company Highlights

Long LOV

Monday, May 16

Micro Cap Value Trading Near 52 Week Low: "Be Greedy when others are fearful"

Click for quotes on all the stock below.

Company size range from the smallest with a negative enterprise value. Average for the entire group is a 119M market value.

Price and some fundamentals on 05/16/2016:

Sizmek Inc. (SZMK)provides online ad campaign management and distribution platforms. It helps advertisers engage consumers across multiple online media channels. The company is financially distressed with a horrible sloan ratio indicating aggressive accruals/poor earnings quality, weak Z score. But the historical and relative valuation is more extreme creating a potential opportunity at these prices.

Positives; share buy backs and reduction of shares outstanding. Price and P/S are near 3 year low. EV/Revenue for the TTM is .16, enterprise value is 31M versus TTM GP of 105.70M EV down from 142M for June 2015.consistent YOY revenue growth from 2015.The improved valuation has attracted shares purchases for the recent quarter 03/31/16 from Royce.Royce added 118,200 shares during the quarter ending 03/31/2016 at an average price of $3.21. Total shares owned 535,950 for an average price of $7.68

Price on introduction date = $2.44
Market Cap:  71.05M , Enterprise Value:     30.76M
Price/Book (mrq):     0.60
Enterprise Value/Revenue (ttm):        0.16, EV/EBITDA = 4.82

Revenue (ttm):  176.50M , Revenue Per Share (ttm):     6.00
Qtrly Revenue Growth (yoy):     10.20%
Gross Profit (ttm):   105.70M : EBITDA (ttm):  6.38M
Total Cash (mrq):     40.29M  Total Cash Per Share (mrq):     1.38
Total Debt (mrq):       0.00
Current Ratio (mrq):    2.50 , Book Value Per Share (mrq):     4.05
52-Week Change:        -65.19%
52-Week High (Jul 31, 2015):   7.91 , 52-Week Low (May 16, 2016):    2.38
Shares Outstanding:    29.12M , Float:  18.99M
% Held by Insiders:    34.14%
Short % of Float (as of Apr 29, 2016): 3.79%

IZEA, Inc. (IZEA)"operates online marketplaces that facilitate transactions between brands and influential content creators. Its platform IZEAx and Ebyline are designed to streamline transactions between brands and creators" Morningstar

Micro Cap value institution Royce initiated a position of 100,000 shares between the prices of 8.34 to 6.38 for an average price of $7.58.

Echelon Corporation (ELON)"develops open-standard control networking platforms, delivering all the elements necessary to design, install, monitor, and control industrial-strength communities of devices." Source Morningstar

negative enterprise value.

LTD reduction, current  balance of .97M from 17.74M for 2013. Price to book and price to revenue near its 10 year low. Further, price is near 10 year low with operating margin expansion. Royce added 304,696 shares during the quarter ending 03/31/2016 at an average price of $5.62. Total shares owned 330,852 for an average price of $7.31

CafePress Inc. (PRSS)"provides e-commerce platform which enables customers to create, buy and sell a wide variety of customized and personalized products". Source Morningstar

Sharps Compliance Corp. (SMED) provides waste management services with a focus on medical disposal specifically small volume clients. It serve customers in markets such as home health care, retail clinics and pharmaceutical manufacturers.

Heartland initiating a positing for the Quarter ending 03/31/16. Price and price to sales at two year low. Revenue per share increase 23% from 2014 revenue per share of 1.73 the current TTM 2.12.

Price on introduction date = $4.16
Market Cap (intraday): 65.64M , Enterprise Value (May 18, 2016): 50.80M
Price/Book (mrq): 2.74, Enterprise Value/Revenue (ttm): 1.52
Enterprise Value/EBITDA (ttm): 23.71
Revenue (ttm): 33.50M , Revenue Per Share (ttm): 2.17
Qtrly Revenue Growth (yoy): 7.80%Total Cash (mrq): 13.45M ,Total Cash Per Share (mrq): 0.87
Total Debt (mrq): 0.00 , Current Ratio (mrq): 4.55
Book Value Per Share (mrq): 1.52
52-Week Change: -24.78%52-Week High :10.49 , 52-Week Low : 4.09
Shares Outstanding: 15.44M , Float: 11.34M
% Held by Insiders: 24.51% , Short % of: 0.57%

TRC Companies Inc. (TRR) a national engineering, consulting and construction management firm that provides integrated services to the environmental, energy, and infrastructure markets in the United States

Revenue per share increased 16% from 2014 revenue per share of 12.37 the current TTM 14.46.

CareDx, Inc (CDNA)develops and markets a diagnostic surveillance solution for heart transplant recipients to help clinicians make personalized treatment decisions.

Tangible book value per share increased by 37% from 2014 1.94 to 2.66 per share.

BioSpecifics Technologies Corp. (BSTC)engaged in the development of an injectable collagenase for multiple indications.

NCAV per share is 5.56 up from the NCAV 2013 per share balance of 3.62. EV/Revenue is 8.22 down from 16.99 for 2014. Revenue per share increase 63% from 2014 revenue per share of 1.27 the current TTM 3.26. Tangible book value per share increased by 52% from 2014 4.45 to 6.74 per share.

EMCORE Corporation (EMKR)a provider of compound semiconductor components and subsystems for the broadband, fiber optic, satellite and terrestrial solar power markets.

LTD reduction, current  balance of 3.08M down from 18.88M for 2013.
Tangible book value per share increased by 50% from 2014 7.22 to 10.88 per share.

Polar Asset added 77,000 shares during the quarter ending 03/31/2016,shares held 1,011,065.Royce added 147,724 shares during the quarter ending 03/31/2016,shares held 775,198.Paradigm Capital 593,100 shares during the quarter ending 03/31/2016,shares held 611,963.

GSI Technology Inc. (GSIT) develops and markets memory products, static random access memory, or SRAM, and low latency dynamic random access memory, or LDRAM.

Tangible book value per share increased by 15% from 2014 3.58 to 4.15 per share.

LMI Aerospace Inc. (LMIA)"is a supplier of structural assemblies, kits and components, and design engineering services to the aerospace and defense markets. The Company's business segments are Aerostructures and Engineering Services". Source Morningstar

LTD reduction, current  balance of 252.70M from 292.2M for 2013.

Village Super Market Inc. (VLGEA)

Village Super Market Inc operates a chain of 29 ShopRite supermarkets in New Jersey, eastern Pennsylvania and Maryland.

Tangible book value per share increased by 11% from 2014 31.48 to 34.88 per share.