Graham Net Net Stock IGOI


With the market up significantly since the March bottom, it’s been very hard to find any more deep value net net stocks but IGOI is a company that I currently own that is still a pure Graham Net Net and things look to be improving while many net net stocks have gone under or are still flirting with bankruptcy and other severe problems.

IGOI Spider Graph Business Valuation

This spider graph is from the business valuation I posted on previously. After 1 quarter, the state of the company and investment still remains the same.

igoi-spider

Net Net Working Capital Calculation

Do remember that when I calculate net nets, I use the pure Graham net net working capital formula. i.e. only considering the real tangible assets, whereas other investors usually take into account other and long term assets.

Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – total liabilities

Even if there is value in its goodwill and other long term assets, if a company is selling for less than the Graham Net Net value and is not losing money, it truly is misunderstood and undervalued.

iGo Inc Net Net Value – Q1

Below is the net net value for IGOI after the Q1 release. As you can see, their balance sheet is healthy with a liquidation value of 94c.

igoi-stock-analysis-q1-2009

iGo Inc Net Net Value – Q2

The 2nd quarter numbers in the yellow fields, now shows an equally strong balance sheet with an increase in cash, reduction in receivables by collecting payments from customers, lowered inventory and liabilities.

IGOI has done a lot of good work within just one quarter which also explains how they managed to profit off lower revenue in the 2nd quarter.

The result is that the net net value has now increased to $1.01. An increase in value from $0.94 to $1.01 isn’t huge or scream worthy, but for a net net to achieve this is quite impressive.

igoi-stock-analysis-q2-2009

Disclosure

I hold IGOI at the time of writing.

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  • Jim

    Good post as always Jae. For me, the importance isn’t so much that a company is a net-net value; its that they’re a net-net value and they have a credible activist investor that is pushing the company to make good decisions for its shareholders. I found many net-net values over the last year and a half but invested in very few of them. The ones I did invest in, I concentrated in. Many of the net-net’s I passed on went bankrupt or are still trading as a net-net. Having an activst investor involved to push the board to make changes that will benefit the shareholders as well as the company itself is the key for me in deep value investing. BTW, Asta is doing remarkable and there is plenty of headroom to get in. Just a friendly reminder 🙂 All the best my friend.

  • TJ

    Hi Jae,

    Did you listen to the conference call? Any thoughts? I haven’t had time to go through it, this company just popped up on my radar screens. Looks cheap but maybe there is no catalyst… they talked about buybacks and they should with all their cash in hand and a stock that’s that cheap: it’d be a great way to allocate capital unless they know something we don’t.

  • @ Jim,

    Having an activist involved will certainly help speed up changes but it’s not an important issue for me. Activists can push for liqudiation but there are always those companies that are definitely better off continuing.

    Again, selection is a top priority when it comes to net nets but if a net net has good operations and continues to trade below liquidation, I’m still getting everything it does for free and I don’t mind holding for years if I am confident that I can get huge returns by being patient.

    Ahhhh Good ol ASFI. Just continues to stride up. Maybe I should just bite my lip and stop trying to save a few cents.

  • @ TJ,
    I listened to it a little while ago and it doesn’t sound much different than the previous ones. Things look to be business as usual and they are trying to enter more distribution channels and increase sales through their new Green product line.

    As I mentioned in the comment above, IGOI never had a activist catalyst. The only catalyst for this company is that the market realises what a mistake it is making. The current valuation is absurd. Less than liquidation value when the company is making money, has patents, products, customers, distribution channels etc which all cost money and time to replicate.

  • Vik Murthy

    Jae,

    I am new to your site, but I have a couple of questions about your analysis, if you don’t mind.

    1. For Q2, you are calculating a liquidation value for IGOI of $32.53 mil. Why do you divide this number by basic common shares of 32.2 mil instead of diluted common shares of 33.9 mil? Doing so would reduce the liquidation value per share from $1.01 to $0.96.

    2. On April 30, you indicated that IGOI’s operations were generating cash. What was the basis for that assertion, and how would you reconcile that with the 10-Q for the quarter ending 3/31/09 showing that IGOI’s operations consumed $1.3 mil in cash (not including a $0.1 mil capital expenditure).

    3. How concerned are you that IGOI’s diluted share count grew 5% sequentially between March 31 and June 30th of this year? Is there some special explanation for this? If not, do you consider this to be a justifiable dilution of common shareholders given the circumstances?

    Thank you very much for taking the time to post your thoughts and for bringing this stock to our attention.

    Best regards.

  • TJ

    Jae,

    The whole “no catalyst” thing is why I’m staying away here. Yes, this company is worth more if it was liquidated tomorrow, but actually the fact that it’s just so mediocre means that realizing the value is less likely to happen- nothing will change because it’s not some desperate, dire situation. Nothing has to change.

    So liquidation won’t happen and no big guys are forcing their hand. If liquidation won’t happen then this company isn’t really worth much because they aren’t and won’t make money. So what’s the value of an enterprise that is going to break even, maybe make a little, maybe lose a little over the next few years? Not that much, to be honest. If liquidation were being discussed then it’d be worth more but they’re not going to have to do that.

    There are so many ways to unlock the value here but management doesn’t care and institutions don’t own much and aren’t doing anything. So I’m staying out.

  • @ Vik Murphy,

    Great questions you bring up.

    1. The values on the spreadsheet are automatically retrieved from Yahoo. As per your observations, diluted number would be much better.

    2. The “generating cash statement” was based on the positive Cash from operations and FCF from 2008. As for their $1.3 burn from Q1, it is negative compared to their previous years but I’ll have to see a couple more quarters to see what the numbers indicate in order to form a better opinion. In a heavy recession such as now, even the best companies have burned through cash.
    However, IGOI balance sheet is strong and the $1.3m is only a small fraction.

    3. I consider 5% to be to be within my safety guidelines. Anything above 5% and its a warning sign for me. But why has it increased 5%, without the financial statements I cant give a clear answer and I’ll also have to dive back into the DEF 14A in order to view their options.

    If the dilution continues on at 5% over the next couple of quarters, watch out, management may be overconfident that that they can deliver higher returns than the dilution factor.

  • @ TJ,

    Personally, it isn’t just about a company having to make money. I don’t mind buying mediocre companies because I never intend to hold them for a long time.
    It’s Graham’s cigar butt investing that I partake in when looking at deep value stocks. For a company like IGOI, where as you mentioned correctly, it may not do anything, the market will still have to realize that the value assigned to the company has been incorrect.

    Currently my exit price is at close to $1. Although, if they can somehow pull a rabbit out of the hat, I’ll be glad and lucky to enjoy the ride.

    A horrific company needs an activist to push it to liquidation levels, but a so-so company should at least be able to reach the bottom level with market fluctuations.
    As a value investor, I found a 50c dollar under some ugly looking rocks and I’m just holding it until someone realises that it is a $1.
    I dont need somebody to try to unlock the potential of $1 to make it to $5 or so.

    But looking at how IGOI is handling things, my opinion is that it will be able to reach the $1 mark.

  • TJ

    OK, last post……

    I don’t think there’s a puff left here though is the thing. How much is a company worth that never makes any money? Management here is greedy and incompetent and there are no activists here to fix it. IMO it’s basically fairly valued given the circumstances.

    I love net-nets and cigar butts are great, I just think this is not a good one to concentrate in. 2 that I prefer right now are ACLS and PRXI. Your blog is solid, I like MHH and I liked VVTV so ty for that $ in my pocket.

  • ACLS PRXI

    I know Jim has written a very extensive post on ACLS on his blog http://valueinvestortoday.com/

    First time Im hearing about PRXI. Museum exhibitions… interesting.

  • TJ

    PRXI is another one of these troubled companies going for real cheap. I’m just going to copy/paste from a couple e-mails I’ve traded with friends to show you the basic outline here (this was before Q2 results came out a week or 2 ago, which I think were pretty decent but still gross, about what i expected)… i added in a few sentences just now but most is old :

    PRXI- turnaround of a screwed up company but with a very good balance sheet. The original CEO totally drove this thing into the ground, so a hedge fund guy that had a lot of shares fought against him, won, and is turning it around, or trying to. they still have a lot of $, they are also the current salvor-in-possession of the titanic, they might lose that but they might not. they own a bunch of stuff from the site already though, its been appraised at $46m but only on their books at $3m. they might fail and liquidate, if they do that though you still might break even or even make $ because of all their assets and i don’t think they’ll hesitate to liquidate with Sellers Capital in control of the company. if they succeed though this thing could be a 5-bagger. i really like managements tone in their latest conference call, they are telling it exactly like it is, not that good. priority 1 was stop cash burn, and they did that in Q1. i think they have a decent shot at turning it around (30-50% i my best guess) and the risk:reward is good. be careful though you could lose all your money, even though their titanic assets were appraised at 46m (the ones they own free and clear, there are others currently in a legal battle) who knows how liquid that market is or how much they’d really get. if they ended up only going for 20m that’d be fine too the market cap of the company is only 20m itself.

    the wild card here is 50% dilution is coming through a debt deal with Sellers that is kind of a necessary evil. also their legal battle over what their status is regarding the titanic wreck is still looming over the company, a bad result there wouldn’t be that big a deal (so far the result was kinda bad but i think it’s on appeal i’m not quite sure) as they still have the artifacts i mentioned before, a good result there would be very beneficial.

  • Thanks for the info TJ. Will look into it a little more now that I have some cash available.

  • nice find. I think it looks nice if it can break over .83. I’m thinking this move is smart phone sympathy maybe. these tech net-net’s sure have been flying lately.
    .-= Mark´s last blog ..Oil Technical Analysis: Like Taking Candy From A Baby =-.

  • I like the new site layout.
    .-= Mark´s last blog ..Oil Technical Analysis: Like Taking Candy From A Baby =-.

  • It was also related to the increase in distribution channels. They’ve been able to enter more phone retailers which will get more eyeballs on their products.

    IGOI seems to have some good things going. I’ve got a nice gain so far but I feel there is more to it.

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