It has been an exciting year so far for some of the members of my 2017 Double-Net Value Portfolio, but make no mistake, "exciting" is not necessarily a positive. Such excitement comes with the territory as small, deeper-value names can be extremely volatile.
The news has been good for small semiconductor name Kulicke and Soffa (KLIC) , which is up more than 50% since September and 18% higher year to date. A good portion of this year's bump occurred yesterday, when the company reported better-than-expected first-quarter revenue and earnings. Revenue of $149.6 million, which was up nearly 38% from the same quarter last year, exceeded expectations by $9 million. Earnings per share of 22 cents blew away the 10-cent estimate, and KLIC was up nearly 10% on the day.
The company remains cash-rich and ended the quarter with $577.4 million, or $8.05 per share in cash, up from $548 million, or $7.78 per share, last quarter. By way of a reminder, much of the company's cash -- approximately 88% -- is held offshore, so the company stands to benefit if corporate tax laws are reformed and cash can be repatriated at lower tax rates. That expectation already may be priced into KLIC shares to an extent.
Yesterday's gain and release of balance sheet data reveal that KLIC now trades at 2.19x net current asset value. While there's little room left on the company's last share repurchase authorization, management indicated on yesterday's earnings call that another repurchase program is under consideration.
The news on and the performance of new double-net Fitbit (FIT) has not been as encouraging. On Monday the company announced preliminary fourth-quarter numbers that were well below expectations. Previous company guidance suggested Q4 revenue in the range of $735 million to $750 million, with consensus analyst estimates at $738 million. So, the pre-announcement of $572 million to $580 million took shares down 16%. Frankly, they were lucky to get off that easy, but the market has hammered the stock so hard over the past few months that it may have been assuming the worst.
Now the company is in reorganization mode and has announced a 6% reduction in workforce. Guidance for revenue in 2017 is in the range of $1.5 billion to $1.7 billion, well below previous expectation, and the company expects to lose between 22 cents and 44 cents a share in 2017.As if not already known, Fitbit is officially a dog with many fleas, not unlike many of the companies that end up in double-net territory.
The question now is what the year-end balance sheet will look like. Fundamental data is backward-looking, especially in a case such as this one, where there has been deterioration not yet reflected in the numbers. The latest available data, as of last quarter, suggested the company had $672 million, or $3 per share, in cash, but likely has taken a hit given the poor Q4 revenue numbers. With Monday's haircut, the data also suggest FIT currently trades at about 1.59x net current asset value. That number can't be trusted, either.
Now the fun begins, as investors try to determine whether FIT has bottomed. That's a very slippery slope and should make for an interesting ride.