Activist investors often advocate for change, but some roll-up their sleeves and get it done. Since Sententia Capital’s Michael Zapata took over the board of small-cap Schmitt Industries, Inc. (Nasdaq:SMIT) one year ago, the Portland-based industrial firm has rapidly transformed from a sleepy family business into a potential gold mine for value investors. Zapata, as he outlined in his plan for change, fetched a premium price for Schmitt’s largest business – its SBS Balancer unit – selling it to a Japanese company for $10.5 million in November. The $14 million market-cap company now has two-thirds of its balance sheet in cash and is buying back up to $2 million shares to return capital to shareholders. The reason Schmitt wants to repurchase shares is they remain cheap at just $3.70 versus an intrinsic value analysts peg at $6 per share.
Schmitt has real estate appraised at $6.5 million that it is evaluating for sale, meaning it could end up with $17 million of cash on its balance sheet (vs the $14 million market cap) before too long. With no debt and two other break-even businesses where the activist investor is cutting costs and pushing for growth, it shouldn’t be long before the company is rolling in even more cash.
While most big investors overlook small-caps, this dynamic combo of share buybacks, piles of cash being returned to shareholders, and fast-moving management could make Schmitt one of the hottest small-cap stocks to watch going into the New Year as investors discover this undervalued gem.
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John Jannarone, Editor-in-Chief