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5 Stocks Trading For Less Than Working Capital

- By Rupert Hargreaves

Below are five stocks that have recently come across my radar. All of these companies are trading at a discount to net asset value, one of the qualities Benjamin Graham required when hunting for deep value equities.

All of these are relatively small businesses (the largest market capitalization is $124 million) and are not for the faint-hearted.


But, if you are a committed deep value investor, these could be attractive additions to your portfolio. (I must also state that these are just starting points for further research -- this is not investment advice.)

Audio equipment

First up we have VOXX International (VOXX). This is the largest company I'm going to profile. It has a market cap of $124 million and an average daily volume (three months) of 74,000 shares. The business manufactures automotive and consumer electronics, items such as rear-seat entertainment devices, collision avoidance systems and others.

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The company recently reported a 17.2% decline in sales for the third quarter of fiscal 2019 and earnings per share of 50 cents. At the end of November 2018, the company had cash and equivalents of $48.7 million and total working capital of $182.5 million, giving a market cap to net asset value of 0.7. The total book value per share at the end of the third quarter is $18.4.

Power management

Next up is O2micro International (OIIM). This business designs and produces power management components for many markets including automotive and computing.

Wall Street analysts are expecting a loss of 23 cents per share on revenues of $63 million for 2018, with a narrower deficit of 11 cents penciled in for 2019.

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At the end of the company's last financial reporting period, it had working capital of $54.6 million compared to a current market capitalization of just $43 million, implying the company is trading for just 0.8 of net working capital. The book value per share, including long-term hazards, is $3.20.

Cable repair

ADDvantage Technologies Inc. (AEY) has a total market capitalization of $15 million at the time of writing. Headquartered in Houston, this is another electronics business that provides cable equipment repair services to cable operators as well as a range of used telecommunication equipment.

There are no Wall Street analysts covering the business, but its revenue has grown at a compound annual rate of 11% for the past six years. It recently completed the acquisition of Fulton Technologies Inc. and Mill City Communications Inc. for $1.7 million, taking it into the wireless infrastructure services business for the first time.

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With working capital of $21.5 million at the end of fiscal 2018, this stock is trading at a working capital to market cap ratio of 0.7. The acquisition will have had some impact on this ratio, but the margin of safety is wide enough to give a solid cushion. Another interesting point to note is that ADDvantage has produced around 30 cents in free cash flow per annum since 2013.

Video conferencing

Clearone Inc. (CLRO) is the next deep-value stock that has attracted my attention. According to its latest filed results, this business has net fixed assets of $15.9 million and a book value per share of $5.4 compared to the current market capitalization of $12.3 million and share price of $1.47. The company designs and develops video conferencing solutions for businesses.

LED lighting

The final company is Energy Focus Inc. (EFOI). This business designs and develops lighting systems, specifically LED lights. The company is not profitable, but it has plenty of value on the balance sheet.

At the end of the last reported financial time frame, Energy Focus had a net cash balance of $7.1 million. That's compared to its current market capitalization of $9 million. Working capital was $13.1 million, and book value per share was $1.15, giving a price-tangible book value of 0.7.

Disclosure: The author owns no share mentioned.

This article first appeared on GuruFocus.


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