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ValueVision: Best Stock Under $1


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ValueVision (VVTV) has been gaining some big momentum as it has shot up from its low stock price of $0.18 to $0.74 and up again after hours to $0.83.

I first began looking at VVTV because it was:

  1. Trading at a huge discount to what I believed was its liquidation value based on Graham’s Net Net formula,
    • (No longer a net net due to its increase in off sheet obligations)
  2. An easy to understand business,
  3. Cash flow from operating activities was positive,
  4. Short term uncertainty surrounding the company

It also confirmed David Dreman’s Rule 12 from Contrarian Investment Strategies

Rule 12: (A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.
(B) Positive surprises result in major appreciation for out-of-favor stocks, while having minimal impact on favorites.

ValueVision’s catalyst was based on the company pursuing strategic alternatives that included the sale of the company. However, on Jan 27, 2009, it was announced that there were no final bidders for the business and subsequently, the stock price fell 50% as institutions gave up and sold out.

The other short term uncertainty surrounding the company, its upcoming $44mil preferred stock redemption to GE Equity, was restructured and delayed until 2013 which provides plenty of breathing room for the company to turn its performance around. At the same time, the new restructuring agreement with GE included 6 million warrants to purchase VVTV at $0.75 and a stock buyback plan of $1.5 million over the next 12 months.

I wasn’t impressed with the conditions (still not) but the recent massive insider buying does finally prove that insiders believe the stock price to be incredibly cheap. Previously, analysts and portfolio managers were grilling the management for not purchasing back its shares but the recent buying activity has created some much needed surprises and optimism.

It VVTV remains at around 75c, GE is then entitled to use its 6 million warrants which will cause the stock price to fall as the shares are diluted.

However, ValueVision is a cheap stock, not as cheap as it used to be, compared to its ongoing operations. Insiders and institution buys as well as a featured video from The Street naming VVTV as “The Best Stock Under $1” doesn’t hurt in gaining more public interest.

As an ongoing business, VVTV seems to be worth around $1.50 at a minimum.

Disclosure

I hold VVTV at the time of writing

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9 responses to “ValueVision: Best Stock Under $1”

  1. jeff says:

    It is amazing at what being an unemotional investor can do for ones preformance… simply having nerves of steel can go a long way!

    jeff’s last blog post..Value investing with the principles of an Austrian

  2. Jae Jun says:

    @ Jeff,
    VVTV sure is a wild ride. Traders would love a company like this as it moves up and down in 15-20% jumps.

    I must admit it isnt easy watching your company drop 60% but as long as I keep reminding myself of why I bought in the first place and have conviction in my decision, I’ll be able to ride it out.

    @ MKL,
    Greenbackd is a good site but with VVTV, they only looked at it from a liquidation angle with an activist catalyst. Had they reassessed the ongoing business, I’m sure they would have seen some huge underlying value behind the price.

  3. Kwood says:

    Also keeping in mind that the Greenback article was posted before the GE stock redemption was worked out which puts worries about bankruptcy off the table for the time being. There will be a lot of hoping and praying on this one as it goes up and down but I think it is a fairly safe bet in the long run.

  4. ValueHuntr says:

    Nice summary. My blog is similar to your in terms of purpose, but we have a great collection of value investing resources to share with our readers, including Ben Graham original lectures, and a video lecture collection from known value investors. Check it out:

    http://www.valuehuntr.com

    ValueHuntr’s last blog post..Selling is Harder than Buying: A Comment on XTNT

  5. Great write up on VVTV, been reading your archives on the stock and totally agree. I got in on a small position before reading your posts, but the reasons and logic are the same. This is a great stock that is finally on the rise and should pop over $1 soon.

  6. Jae Jun says:

    You’re right. I also view net nets as businesses so I will try to look at its operations as well.

  7. Jae Jun says:

    Thanks for coming Aman. Although I was disappointed that it wasn’t able to sell themselves, their new cable agreements should improve margins and thus cash flow. If the new CEO can change things around, the company should be moving upwards.

  8. Jae Jun says:

    Hi ValueHuntr,

    Just visited and must say I do like the similar ideas. It helps me save time by not having to write about all my ideas.

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