Richardson Electronics (RELL) is in the unusual position of trading for less than its net cash per share, which means the market has basically decided that the stock should be free. In fact, buyers are theoretically getting paid just to take a stake in the firm.
Whether that's because RELL has lackluster results, has fallen off of the radar, is too small to care about or some combination of all three, this isn't a situation seen much in recent years as stocks generally trended higher.
Companies trading for below their net cash are simple enough to identify, but it's harder to ascertain their "legitimacy." Screen for them and you'll come up with a fairly long list of names, but most are either biotechs burning through cash or Chinese stocks that trade in America.
I've always been skeptical of the latter, as I owned a U.S.-listed Chinese stock many years ago that traded at a discount to net cash. I don't remember the company's name, but it was the third- or fourth-largest provider of portable solar ovens in China, as ridiculous as that sounds now. It was actually winner for me, but that was pure dumb luck.
In Richardson's case, investors have hammered the stock's price as revenues fell and the company's bottom line turned red for several quarters. That might be a logical move, but things have reached the point where RELL is trading for around $5.20 even though it has $6.16 a share in net cash and investments (the company has no debt).
Theoretically, that means investors willing to shell out some $5.20 a share immediately get $6.16 back in cash and investments. You also get all of the company's other net assets, which RELL's books value at around another $5 per share.
Of course, that's just theoretical. If Richardson continues to generate losses, the company will burn through its cash and render the above figures meaningless. But there are some reasons to feel hopeful that RELL can turn things around.
For openers, revenues rose 3.8% during fiscal-year 2016's first six months, so the company's sales might have bottomed out.
Second, Richardson has not only continued to pay a 6-cent quarterly dividend (the current yield is 4.5%), but is also buying back stock to the tune of 288,000 shares during the company's fiscal second quarter. This suggests a confident management that's not hunkering down to preserve cash, but believes that RELL's shares are undervalued.
Of course, only time will tell if that confidence is well-founded or simply naive -- and whether Richardson is undervalued ... or just a value trap.