Hey Jae,
I had a look at this stock today. I read the 10 k as well, overall looks promising. Here are a few points:
- Cash flow positive, business has been deteriorating over the past 10 years. Probably why it is selling for such a low price. It also suspended dividends, another reason why it is selling at this price. It is also worth less than 10mil, might prevent some inst investors from buying the stock.
- Massive cash position, and since this business is unlikely to burn through a lot of cash, this offers you a significant MoS.
- If the firm returns to average past years earnings, you are only paying 6x average earnings.
- High dividend yield, due to the industry. The company is basically a temp worker agency with a bit of specific industry knowledge. No real cap ex required.
- Majority owner and there appear to be anti-takeover defenses in place. This reduces the chances of catalyst and increases the chances of this being a long run net-net.
While I dont think this firm will be a 5 of 10 bagger, the fair price of the firm is imho roughly $ 4 a share. If the earnings recover, the price should follow. MoS is high because of the high cash position. Liquidation would yield a 50% return. Continuing business operations recovering ~ 100%.
Reg,
Floris
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