Negative Enterprise Value Screen for Net Nets

March 11, 2009 | Comments (12)

I was reading a post by Magic Diligence on Why and How to Use Enterprise Value in Evaluating Stocks and realized I could find companies trading at less than cash per share quite quickly. By searching for companies with negative enterprise values, the screen would also ensure that the companies have manageable debt as well as the business being non capital intensive e.g. airlines and oil industry. Add in a couple of extra criterias such as an enterprise value/revenue < than 1 and a ROE of > 0 to try and filter out unduly cheap companies.

You can run the screen yourself at Yahoo.

Screen & Results

The screen criterias are:

  • Enterprise value <= 25m
  • Enterprise value/Revenue <= 1
  • ROE >= 0

From the results, there were two that stood out.

Global Sources LTD (GSOL)

Global Sources Ltd. is a business-to-business (B2B) media company that provides information and integrated marketing services, with a particular focus on the Chinese market. Buyers rely on the Company’s media to stay up to date with available purchasing opportunities. Suppliers use its media to find new buyers and markets for their products. Suppliers using the Company’s four primary channels: online marketplaces, print magazines, trade shows and direct online sales, are supported by its advertising creative services, education programs and online content management applications.

Current Price: $3.67

Cash per share: approx $3.55 (according to Yahoo)

Other Quick Points:

  • FCF positive
  • Recently completed a tender process at $8 per share
  • Impressive margins and performance metrics

Heidrick & Strugg (HSII)

Heidrick & Struggles International, Inc. (Heidrick & Struggles) is a provider of executive search and leadership consulting services. The Company helps its clients build leadership teams by facilitating the recruitment, management and deployment of senior executives for their executive management and board positions. In addition to executive search, Heidrick & Struggles provides a range of leadership consulting services to clients.

Current Price: $14.33

Cash per share: $14.03

Other Quick Points:

  • FCF positive for past 3 years
  • Fair value somewhere around $20-$30

Other Results

These companies are not trading at negative enterprise values but are very close.

Tandy Leather (TLF)

Horsehead Holding (ZINC) – One of Pabrai’s holdings

Tuesday Morning (TUES)

Build a Bear Workshop (BBW)

DivX Inc (DIVX)

Disclosure

No holdings at time of writing

  • http://widemoatinvesting.wordpress.com Wide Moat

    One that I have that should meet your criteria is KSW, an HVAC installer and construction trade manager based in NYC. Market cap ~ 13.5 million, Net cash ~ 19 million. They also have over 60 million in future revenues booked in the backlog. There is a small buyback outstanding for $1 million.

    Wide Moat’s last blog post..eBay’s 2009 Analyst Day

  • http://www.oldschoolvalue.com Jae Jun

    Since it is so small, I’ll have to take a look at how much insiders own. If they own a large percentage of the company, it will be hard for institutions, even small ones, to buy. The integrity of management would be especially critical in this case.

    Thanks for the tip.

  • http://www.oldschoolvalue.com Jae Jun

    GSOL did well in the year and the market is liking it. Strong balance sheet remains. up 23% on the day.

  • Jim

    TRID is my latest net net.

  • http://www.oldschoolvalue.com Jae Jun

    What’s your idea for TRID? I’ve heard the name for quite a while never looked into it.

  • MKL

    James Simons owns 8% of this company through his Renaissance Technologies. While I acknowledge his genius, I don’t know WHY he owns it, other than the basic – he assumes his investment will increase in value. It’s enough to make me curious, but not blindly follow.

  • Jim

    A) Its a Net-Net B) an activist investor who is also a well known value investing group has taken an active role in the company and is petitioning to replace the board of directors in order to create shareholder growth. C) the company is lead by a CEO who was active with SHARP Electronics who also happens to be one of their largest buyers of their technology. Without going into greater detail, they have upside potential as a going concern for the long term and they have upside potential if a liquidation happens do to a board change.

    “Heads, I win allot; Tails, I don’t lose much” – Mohnish Pabrai

    Jim

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