Can’t find old one. Stole this idea from Whopper Investments.
Anyone looked at RSKIA - George Risk Industries? Pink sheet, tiny as hell. Case is (briefly):
Net cash on hand, is about 25 M (0 debt), and they make about 2M in FCF a year. The stock trades at 30. So basically you get to pick up 2M in FCF for about 5-6M. No dilution, pays regular divs. The company makes alarm systems for houses.
Do you think this is a value trap? I looked for two minutes so I am hardly informed (they have no investor section on the website and could not find the annual report on SEC and I’m too lazy to walk over to the bloomberg).
But on surface, they make commodity-ish products that are probably being made in China already. The value in the alarm business is the service / recurring annuity portion, not the manufacturing portion. The other stuff they make is bad (custom engraved keycaps, etc.). Stock does in fact look cheap but does not trade (keep in mind that the liquidity discount for these tiny microcaps can be enormous because institutions can’t get involved to bid the price to fair – sometimes as much as 30% discount, perhaps even higher).
Assuming they don’t do anything stupid with the cash (why aren’t they buying stock? that alone is stupid) then it might be cheap, but probably only if they sell it to someone. This does not belong as a public company or even a stand alone entity. It “should” be part of a larger entity and could save a lot in public costs that way (perhaps $2-3 million a year). So it’s VERY cheap to a strategic, but would they sell? Why have they not sold already? What is the ownership structure and how old is George Risk?
I’m not saying it’s not a long, but those are the questions I would ask. If you want to own a microcap like this in a mediocre business, you need a catalyst. These types of stocks can stay cheap FOR YEARS because most professionals investors can’t get involved due to size / illiquidity. I don’t like buying stocks that stay in microcap purgatory. Anything above the range of $300 - 500 million is incapable of staying truly cheap for extended periods of time due to the competitive nature of the markets, but all bets are off below $200 million due to investor constraints and apathy.
I misread what you said – if they have 25m of net cash with a 30m cap, that is indeed very cheap. But I would still want to know how I got paid for owning this. They need to have some plan for the cash. Probably they are hoarding cash because the underlying business is shit. It’s a big risk that they could out and blow the cash on something stupid.
i don’t look at small tiny caps that way (what they have as cash etc)…way too much room for error, fraud…i have looked at other alarm companies in the industry and it is safe to say when housing comes back, so will their products…
this looks like a cigar butt…
i’m gonig long Intel shortly…
Good points all. I’ll look more deeply into it and respond to these points after L3 this wknd.
One reason I don’t think this is an obvious value trap is because they pay regular dividends and they’ve increased over the last 3 yrs + they’ve reduced share count. So further increasing divs could be a potential catalyst.
i just glossed over this thing, the only thing about it problaby is it has a huge cash balance…you’re paying more on earnings for this than Intel, MSFT etc
but i guess deep value guys like getting into this sort of thing for the sake of it…
Is this Pink Sheet market actually somewhat legit? I was reading about their reporting requirements and it seemed surreal. I’d rather go to the Casino I think.
Honestly, it seems like one of these Nigerian scams. Look at this website and see what I mean:
http://www.awesomepennystocks.com/
Because of where I live, I’m always trying to figure out how someone is trying to fuck me. This seems like the perfect vehicle for incorporating a BS shell company. Listing it on this thing. Pumping the stock on the internet. Spend the cash and stop reporting.
Yeah seriously, do something with the cash.
With microcaps, whether it’s India or the US, the question should always be, “How are they trying to fuck me?” I have seen some surreal investor butt screws in microcaps. I generally avoid anything under $200mm unless it is a high quality business and I can sit down and grill management. Something that makes switches and keys and hoards cash sounds very bad.
RISKIA i mean that says it all.
Check out the website. http://www.grisk.com/
Looks like one I made for my freshman year Intro to Computing course.
It’s 66% owned by Mr. Risk. I’m not making this up.
i don’t actually see much upside to this unless they happen to liquidate, in which case you get a one time pop…but how much will the stock move even in that case? its not cheap on earnings basis for sure but not 100% clear on quality of the business though i have my doubts in these commodity low margin businesses…
Well I think that when you’re looking at tiny pink sheet stocks you’re bound to find shady businesses, if they were great firms they wouldn’t be tiny and unknown. RISKIA doesn’t even get their quarterly reports audited, only the annual reports are.
At the same time there are firms listed publicly but are meant to be run as a private company, and I don’t know if it costs any money to be listed as a pink sheet stock v exchange. Overall it’s early in the due diligence, there is no question the underlying business has poor fundamentals, but I’m bullish on this firm primarily due to its stable cash flows and the fact that they’re returning cash to shareholders.
on that note, any of you guys have an opinion on DJCO? Same type of case - poor/declining business but strong cash pile.
a lot of companies are returning cash to shareholders, and a lot more of it…please give me a case where this company does better than INTC? you got a global firm with 60%+ gross margins and a dividend yield of 3%+ and will likely grow over time…you got a pretty solid position in the business due ot scale, brand, experience, know how etc…your nearest competitor is less than half your size and you got tons of cash on balance sheet ot boot…oh yeah, its trading under 12 times forward, trailing P/E…historically low…
I don’t disagree on your comment on Intel being cheap. I’ve looked at it as well, the issue for me though is that I dont’ understand their business and thus can’t evaluate where Intel is going to be in say 10 years. Is their dominant position going to stay, or is it going to erode? I have no idea. Plus, I don’t think their brand value is that powerful. Inability to evaluate business prospects is also stopping me from considering Cisco, which is even cheaper than Intel.
…Cisco’s earnings are actually on the decline or meddling in the same range…Intel’s EPS has close to doubled…that’s the difference in numbers, but the competitive landscape for Cisco is also more murky…
My thinking is that Intel will likely sell more chips in the future on anything that requires a transistor…the brand matters in the sense that OEMs and other buyers recognize their product but they won’t be able to charge an outsized amount on it…i also like the way they’re heading it up with Android…the numbers/balance sheet speaks for itself…at current valuations, you can afford to be wrong on certain fronts (and I will be)…
let me know if i am missing something here…i haven’t read through this company per se and definitely still in teh learning stages of this company…
Regarding Loews:
The value of their publicly traded large ivnestemnts is roughly 14.5 B
Diamond Offshore 4.68 CNA Financial 7.109 Boardwalk Pipeline 2.717 14.506
Their market cap is 15.5 B, and so this stub is valued at 1B but it’s BV is really equal to 4.297B. Do you have any idea of what the intrinsic value of it would be? I haven’t looked that deeply into it, there’s a bunch of securities in there. If the IV of the stub is not substantially more than 4B, then maybe it’s only moderately undervalued.
Also, do you have any insight on Buffet’s newspaper buys? He’s been buying up random tiny papers, perhaps DJCO is worth looking into.
on Lowes, they break out the sum of the parts value for you (suppose that is where you got it)…Lowes is a play on discount to nav, you don’t buy it for the underlying intrinsic value per se cause if you can figure out the intrinsic value, you might as well by the pieces individually (this is semi correct thought but overall its how i look at it…i’m long diamond offshore)…Companies in Lowes is generally poor in my view, they’re stodgy non growth businesses…Lowes is good at capital allocation but not running profitable businesses…over the last few years, much of the EPS gains have come from share buybacks (they did this HUGE!!)…
I understand buffet is buying into local newspapers where it is the main print for the community (he believes it still has value as there still needs to be print)…
I’m putting in a limit for DJCO at 85. The business is in decline according to conventional wisdom. However, firm has 104M in securities v a 121M market cap. Hence you’re paying (121-104 =) 17 M for FCF of about 8-10M a year. If you get in at 85 you’re paying 13.3M for that cash flow. Essentially you’re paying for an investment fund as well as a legal newspaper.
The catalyst is not obvious, but in my opinion, the catalyst is going to be Munger and JP Guerin (one of the Superinvestors of Graham and Doddsville) investing the capital they have. Historically DJCO has not been taken seriously as a firm, but it seems that since late 09/10 they’ve started investing DJCO’s capital well and BVPS has exploded since then. However, I’m still not clear what will happen after both of them are no longer present.
the cash flow for the biz is nice too…i think i might coattail you…i’ll have a further look tonight but the logic looks right…
been looking at GOOG…your thoughts if you have any…
there were substantial unrealized gains attributed to common stock over the past 6 months (looks like munger has not lost his touch)…any guess what that might have been? been looking at SEC filings and see nothing…