Buying Nam Tai at these prices is an easy decision.
Current Assets minus TOTAL LIABILITIES is about $5 a share. This company does not piss away its cash unlike many others. So $5 is the floor for the stock. Now that does not mean that the stock will not fall below $5, but it does mean that the intrinsic value is at least $5. Below $5, I will double my position.
Most companies that are trading at such low levels compared to their net tangible assets are money losers but Nam Tai is making money. Yes, Yes, I know Japan's effect may be big, but that is why investors can buy this gem for such a low price. Uncertainty is the friend of the patient and wise investor.
Nothing is a guarantee in investing in equities, but with Nam Tai the odds are greatly in your favor.
According to Dec 2010 Balance sheet:
Current Assets = 337 million
Total Liabiltites = 117 million
Current Assets minus Total Liabilities = 210 million
Shares outstanding 44 million
210/44 = $4.77
So $4.77 is the floor, but of course NTE has a good franchise with positive cash flow thus making it worth a lot more. They had 28 million in free cash flow last year which is 63 cents a share.
Maybe Queen Anne's point can be seen from this perspective: How much money could be extracted for some other use, without impairing the business?
I value this particular company, inclusive of cash, machines, bldgs, etc., at more than book. But we can break that down into two piles: (a) stuff they could take and use for some other purpose while still making money at full steam, vs (b) stuff they need to keep in order to make more profits.
Except for some of the real estate, I think everything you mentioned is in the "need it to operate" category.
Great discussion, everyone.
Jaret, interesting points, but to be conservative, I (like astral) prefer excluding non-current assets for valuation. NTE is not a net-net but pretty close to one. Net-nets usually are money losers and time is not on your side but NTE is cash flow positive (unless Japan throws them a wrench). So NTE shareholders can afford to be patient unlike holders of net-nets. I don't think there are many net-nets left in the market.
djed, I agree there is no floor for any stock, but if the company is cash flow positive and has a great balance sheet like NTE, then rational investors should accumulate the stock at prices below net current assets with no (or little) fear.
That's a philosophical difference then. To me, the "floor for the stock" is the liquidation value, modified by the profits/losses expected in the near term. To me, an imaginary company (not NTE) that's breaking even, has $100M in the bank, and a factory that could be sold to another company for $100M, is then worth over $200M, and so the market cap should never go below that value. I think that's a very typical way of looking at it.
But, whatever, let's agree to disagree. I think we can agree we are getting a bargain either way.
'can't go any lower' ??
Not sure I see your perspective. The stock is doing great. I'm up 40% right now.
We're talking about different ways of getting at the valuation of the stock, not trying to prevent people from handing us $3 shares down the road.
Your point is fine, but there's no need to belabor it to that extent.
Right, that's the valuation method I described. I certainly don't call it a 'floor' on the price. The price is way under that number right now imo.
Getting back on topic for a sec, though, what was your point about book value? You said that net current asset value was 'wrong' and book value was right. I still don't understand what you were getting at.
Well obviously the true floor for any stock is 0, but I think you're missing the point. Below a certain point it becomes, while not impossible that it will go lower, at least extremely unlikely, and if it does go lower it often doesn't last. In a bad market a stock can languish at surprisingly low levels for a while, but in a good market it is quickly bought up and liquidated, or acquired by a larger competitor.
The question here isn't, "how low can this stock go when the sky is falling?" but "how low can it go before it seems to be a shockingly good deal?" "It can't go lower" is not meant literally.
The last time BEFORE the most recent recession that I bought a profitable company sitting at net cash value, it was quickly bought up at a large premium and liquidated by a private investment group. I'm sure you've probably had similar experiences.