The markets had a wild ride last week. Fridays rebound left the DOW at a 1.2% loss for the year after a 1.0% loss last week and NASDAQ was adown .4% and now stands at up 2.0% for the year. We had a .5% loss last week fueled by the 20% loss in EXTR. We are now up 3.6% for the year.
No earnings last week.
Some of our stocks are just stupid cheap—compared to their net cash on hand divided by their stock price.
Check this list:
ATEC, PRSS, CAFE, MRVC, DAEG, SYNC, SIGM, CCUR, BLIN, EXTR, DXM and UNTD can still be bought.
Last week we went 5 stock up, 8 down and 1 unchanged (the second worse week of the year). Since inception we are now 66 stocks up and 21 down for a 75.9% winning percentage (80% is our target win %). Of our closed-out positions 60 have been winners and 13 have been losers for an 82% win percentage and a 35% average net gain per position.
The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).
Alphatec Holdings, Inc. (NASDAQ-ATEC)-Recommended 9/2/2014)
Buy Price $1.56
Valuation $3.00 (Was, $11.27)
Closed down $.09 at $1.45
Next earnings due out Thursday, October 30th after the market close.
Down 7% BUY
CafePress, Inc. Inc. (NASDAQ-PRSS)-Recommended 5/19/2014)
Buy Price $5.40
Valuation $12.51 (Was, $11.27)
Closed down $.10 at $3.12
Earnings announced on August 12th. Nothing to write home about and no update on their “strategic alternatives”. They did announce the “retirement” of the current CEO and the return of the two founders as CEO and Chief Marketing Officer. They also made their interim CFO, permanent. Revenues were down less than $1 million to $51.4 million and Non-GAAP loss was $1.8 million ($.11 per share) up from a $.7 million loss or $.04 per share last year. Our valuation actually rose from last quarter to $12.51 mostly on reduced losses.
Waiting on the outcome of their review of “strategic alternatives” which now seems like it will take a few more quarters as the founders right the ship, which will probably entail a restructuring and some investment in the business.
Down 42% BUY
Extreme Networks, Inc. Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $3.43 (was $3.95 before double up)
Valuation $9.68, (Was $8.52)
Closed down $.82 at $3.07
The CEO bought 10,000 shares on 8/29 at $5.33 a share.
EXTR announced preliminary sales and earnings last week. They will miss on both. They are looking for revenues of about $135 million and breakeven Non-GAAP net income. So the stock got hammered—after already being hammered by the market decline. With the reduced guidance our valuation will be about $8 a share—more than 2X the current price. We are doubling up here at $3.03 which will give us an average buy price of $3.43
Q4 earnings (June 30) announced August 13th.
Non-GAAP revenues came in at $156.9 million compared to revised guidance of $153-$155 million and Non-GAAP earnings came in at $.09 per share compared to revised guidance of $.06-$.08. Our valuation jumped 14% to $9.68 per share.
Guidance for Q1, 2015 was tepid at $149-$153 million and Non-GAAP net income of $.06-$.08 per share. Hopefully they will beat this as they did this last quarter.
The company is still going through the merger integration and is targeting 10% Non-GAAP operating income margin for FY 2015 compared to 7% for the just completed FY 2014. That would be a big deal.
Down 22% BUY
United Online Inc. (NASDAQ-UNTD)-Recommended 3/12/2014)
Buy Price $10.28
Valuation $35.84 (Was $32.35, $27.86)
Closed down $.05 at $10.67
Next earnings due out Tuesday, November 4th after the market close.
UNTD announced Q2 2014 earnings after the close on August 11, 2014. Revenues were $55.4 million down 3% from $57.2 million last year. GAAP net loss was $.75 a share, compared to income of $.03 per share last year. OIBDA (operating income before depreciation and amortization-the term United uses, which is essentially EBITDA) was $10.1 million compared to $10.1 million last year. Overall an OK quarter. Our valuation rose to $35.84 from $32.35 last quarter. UNTD is trading at about 30% of our valuation and cash is 30% of the market cap ($4.78 a share versus $4.29 a share last quarter.
Up 4% BUY
Synacor Inc. (NASDAQ-SYNC)-Recommended 12/17/2013)
Buy Price $2.56
Valuation $5.21 (Was $5.44, $6.67, $6.39)’
Closed up $.12 at $1.69
More public letters being exchanged by SYNC and JEC and Ratio Capital (who combined own about 10% of SYNC). It is getting quite heated with JEC using words like “misleading”, “value destruction” and “entrenchment tactics”. We think it is great that they are not letting up. If this market were not so bad we think this would be trading at, at least $2.50 a share just based on this agitation. This exchange of missile letters is after SYNC issued a press release in September announcing a 20% headcount cut and reaffirmed their Q3 guidance of $25-$26 million of revenue and ($.5) million to $.5 million of EBITDA before severance costs.
SYNC announced Q2 2014 earnings on August 12th. Revenues were $24.2 million down from $26.7 million last year. Net loss was $.07 per share compared to a loss of $.02 last year. Adjusted EBITDA was a loss of $1.2 million compared to positive adjusted EBITDA of $1.0 million last year. Another lackluster quarter. Our valuation slipped again to $5.21 a share.
They are projecting $25-$26 million in sales next quarter and breakeven +- $500,000.
Our valuation fell to $5.21 from $5.94 last quarter. Cash was $.94 per share, about 60% of their market cap.
JEC and Ratio, who together own 9.8% of SYNC sent letters to the SYNC Board in June demanding that they halt the CEO search and immediately put the company up for sale. Our thought’s exactly.
Down 34%. BUY
Dex Media Inc. (NASDAQ-DXM)-Recommended 5/10/2013)
Buy Price $15.14
Valuation $34.00 (Was $37.98, $34.36, $31.50, $24.25)
Closed up $.14 at $8.05
Next earnings due out Tuesday, November 4th, before the market opens.
DXM announced another debt tender in September, this time for about $29 million of debt at discounts ranging from 10% to 23%. Not as big a discount range as previous tenders as their debt prices have firmed based on their continued good performance.
DXM announced Q1 2014 earnings on August 11th. Revenues were $474 million down from $558 million last year (adjusting for the SuperMedia acquisition). GAAP net loss was $4.93 a share, compared to a loss of $4.58 per share last year. Adjusted EBITDA was $174 million compared to $214 million last year. Again, not a bad quarter as YOY declines have been anticipated, but again a bit below our expectations. DXM generated $105 million of free cash flow in the quarter and paid down its debt by $128 million in the quarter. Net debt stands at $2.370 billion. Our valuation fell a tad to $34.00, from $37.98 last quarter. DXM is trading at about 24% of our valuation, but due to the high debt level and small number of shares outstanding, relatively small changes in DXM’s results can cause large swings in our valuation.
Down 47% BUY
Daegis Inc. (NASDAQ-DAEG)-Recommended 11/30/2012)
Buy Price $1.09 (Was $1.20 before we doubled up)
Valuation $2.85 (Was $3.39, $3.25, $3.42, $4.64, $4.86, $4.00)
Closed up $.01 at $.67
First quarter (7/31/2014) earnings announced on August 26th.
Revenues were $6.7 million down from $8 million last year and $7.2 million last quarter. They lost $.02 per share on a GAAP basis. On a Non-GAAP basis they made $.01 a share versus $.03 last year. Our valuation fell to $2.85 up from $3.39 last quarter. Net debt came down to $7.6 million from $11 million a year ago and the credit agreement was extended out to June 2017. This is a drop-off from last quarter, but they are still making money and paying off debt. It will be a longer wait to see some action here.
Norm Pessin filed a 13D on November 27, 2013 disclosing a 6.2% stake and upped it to 12.2% in December 2013. Good news that someone else sees the value here.
Down 38%, BUY
Bridgeline Digital Inc. (NASDAQ-BLIN)-Recommended 8/24/2012)
Buy Price $1.17 ($1.24 before 2/14/2014 $10,000 adder)
Valuation $1.75 (Was $1.76, $1.83, $1.61, $2.19, $2.35, $2.56, $2.24)
Closed down $.02 at $.62
Earnings for Q3 announced August 14th. Slow improvement. Revenues were $6.2 million up 11% from $5.6 million last year and $5.3 million last quarter. They lost $1.3 million versus $1.6 million last year. They are projecting they will finish the year at $24 million in revenue which would mean another $6 million quarter for Q4. Their backlog rose to almost $26 million (up $6 million from last quarter) and recurring revenues grew 50% to $1.8 million. We continue to think that their recurring revenue stream of $7.2 million a year (based on this quarter) is worth more than the current market cap on BLIN.
Our valuation was $1.75, flat with last quarters $1.76. BLIN is trading at about 35% of our valuation.
Down 50%, BUY
Telecommunications Systems Inc. (NASDAQ-TSYS)-Recommended 6/14/2012)
Buy Price- $1.37
Valuation $6.12 (Was $5.99, $5.32, $6.81, $6.28, $4.89, $6.02, $6.72, $5.49)
Closed up $.04 at $2.84
Next earnings due out Thursday, October 30th after the market close.
TSYS announced second quarter earnings on July 31st. Revenues were even with last year at $86 million, gross margins rose to 44% from 39% and adjusted EPS was $.05 per share versus a loss of $.01 last year. They beat earnings estimates of $.02 a share. Our valuation rose to $6.12 per share. All in all a good quarter. Net debt improved $20 million from last year and now stands at a reasonable $72 million.
We will continue to hold TSYS despite our over 100% gain. Maybe this will turn into another MITL and be trading at $10+ in the next year.
TSYS is trading at about 48% of our valuation. .
UP 107%, HOLD
MRV Communications (Pink Sheets-MRVC.pk)-Recommended 10//10/2011
Valuation $24.58 (Was $23.19, $25.50, $28.98, $24.01 $23.06, $27.15, $31.80, $34.60, $28.60, $41.20, $43.20 (after $9.50, $6.00 and $1.40 special dividends), $52.40, $55.80)
Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)
Closed at $11.80 down $.41
MRVC filed their 10Q on August 19th.
Revenues continued their consistent climb upward to $43.1 million from $38.2 million. Gross margin recovered a bit to 34% from 31% last quarter. GAAP net loss per share was $.31 versus $.13 last year and our valuation rose to $24.58.
Karen Singer filed a 13G in May 2014 disclosing a 5.3% stake. Singer was a 13D filer before and helped instigate all the special dividends. Good to see them with a healthy stake again.
Lloyd Miller disclosed a 6.9% stake in February 2012.
UP 37% BUY
Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Valuation $9.60 (Was $8.24, $9.16, $12.30, $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed down $.01 at $3.76
Earnings announced for Q2 FY2015 on September 10th. Going in the right direction for a change. Although revenue was down from last year at $42.8 million compared to $53.8 million it was up from the $36.9 million last quarter. Non-GAAP loses was also cut to $2 million from $5 million last quarter. Net cash rose a bit to $2.41 per share and our valuation bounced back up to $9.60. There was no forward guidance given.
Ariel Investments filed a 13G on January 10, 2014 disclosing a 10.1% stake in Sigma.
The CEO bought 343,000 shares back from Potomac Capital in December 2013 leaving Potomac with only 465,000 shares of SIGM. The interesting part was that the CEO paid $5.50 a share or about $1 over its trading price at the time. Either a great expression of confidence in SIGM or a small price to pay to get rid of an activist investor.
Down 56%, BUY
Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$4.58 (Was $5.08 before $.50 special dividend)
Valuation $17.72 (was $15.01, $15.10, $14.55, $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed down $.07 at $8.09 (including dividends)
Pays $.48 annual dividend.
Next earnings due out Tuesday, October 28th, after the market close.
CCUR announced Q4 2014 earnings on August 27, 2014. Revenues were $17.8 million, up 20% from last year. Pre-tax income was up 66% to $2 million from $1.2 million last year. EPS including a huge tax expense reversal was $1.71 a share compared to $.12 last year. Net cash was $3.08 per share and gross margin rose to 60%. Our valuation jumped to $17.72 from $15.01 last quarter. CCUR is trading at about 40% of our valuation and cash is about 39% of the market cap. We have collected $.96 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 79%, BUY
ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
Valuation $5.67 (was $5.57, $5.70, $6.71, $6.41, $6.14, $5.97, $6.21, $6.13, $5.82, $5.81, $5.72, $5.65, $5.39, $4.86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $3.30, up $.09.
ARI announced another acquisition in October. This one provides software, websites and digital marketing services designed exclusively for dealers, wholesalers, retreaders and manufacturers within the automotive tire and wheel vertical. They have about 600 customers. This deal will add approximately $6 million a year and positive EBITDA to ARI results. The purchase cost $9.1 million of which $4.2 million was in cash, a $3 million seller note and $1.9 million in stock and a potential earn-out. At 1.5 times sales, this was a reasonable price in our opinion. This should give them about a 15% boost in sales for FY 2015 (started August 1, 2014). They are doing a good job positioning the company to be acquired. Hopefully this will soon happen with a $5+ price like we got for XRS in September.
ARI announced Q3 2014 earnings (quarter ended April 30, 2014) on June 12th. Revenues were $8.2 million about even with last year. They actually made a profit of $.01 per share versus a $.05 loss last year. Our valuation rose to $5.67 up from $5.57 last quarter. Recurring revenue was $7.6 million or 93% of total revenue.
It was nice to see them stop losing money, but growing revenue at their 80% margins boosts value more than earning $.01. Too bad their poor capital structure makes them have to balance the two. It will just take longer for them to grow.
From their press release:
“As we noted on our prior quarter earnings call, we expected year-over-year organic revenue growth in the back half of fiscal 2014 to be challenging, however, we anticipated significant improvement in our earnings and cash flow. The results for Q3 are in line with these expectations. The investments we are making in sales and marketing are having a positive impact on new sales and upsells. To date in fiscal 2014, we have invested 29.4% of revenue in sales and marketing versus 25.2% for the first nine months of last year. This has contributed to new dealer sales and upsell bookings, measured in annual contract value (ACV), being up 38.8% year-to-date. We believe this should translate into single-digit organic growth in Q1 FY15, growing toward low double-digit growth as we progress through fiscal 2015.”
UP 105%, HOLD, Still a large valuation gap here.
CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.22 (Was $.99, $1.02, $1.05, $1.07, $1.14, $1.17, $1.34, $1.34, $1.37, $1.36, $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.38 closed at $.35
Q2 earnings disclosed on their Form 10Q on 8/14 and a press release!. Another good quarter. Revenues were $4.1 million versus $3.9 million last year and they reported a $.01 loss, the same as last year. Cash soared to $.17 per share from zero last quarter. Deferred revenues more than doubled from December 31, 2013 to $5.8 million.
Our valuation jumped 23% to $1.22 a share, the highest in over a year.
CTI announced in June that the special committee of the Board of Directors rejected managements $.40 buy-out offer. Then the special committee was promptly disbanded. This company should not be a public company, but we can understand the decision in rejecting a lowball offer. They need to get an investment banker and sell the company. Probably get at least $.75 a share for it from someone.
UP 41%. HOLD
I am new to your blog but have been very interested in the stocks you have chosen. As I am really just getting my feet wet with value investing and trying to read as much as I can, I was curious as to your valuations of these companies. I know everyone has their own valuation strategy and uses different metrics, but I was wondering if you could enlighten me on your process a bit more. I’m sure you don’t want to give all your methods and techniques away, but any insight would be most helpful and appreciative.
It took me a long time to get to a simple valuation method and I don’t disclose it.
That’s ok. I’ve always been very partial to the saying “If you’re good at something, never do it for free.” (The Joker, hah) However, I’ve found your blog extremely interesting. Thank you for your continued posts. I look forward to future reading and following along with your blogs portfolio.
Hopefully my stocks will do better than they have lately. Tough market for small caps this year.
Seems to me that the market is pricing a slightly tigher monetary policy from the FED, which eventualy is a bigger drag on small caps compared to big caps, but…who knows?
RE Chris, IMHO, Dave has already given enough clues as to build up a “similar” valuation method, at least from the quantitative point of view. All you need is a bit of econometrics and hard work.