Typically, once you've identified a cheap name, it takes the markets quite some time to catch on, assuming that you were correct in the first place. Either way, it can be a bit like watching paint dry or grass grow.
Such is the case with former double-net stock (a stock trading between 1x and 2x net current asset value) RetailMeNot (SALE) . It's an online coupon company that was in double-net territory last year when it was trading in the mid-$7 range and I believed was a potential acquisition candidate.
RetailMeNot shares rose to the $12 level from there, lifting the name out of double-net land, a place no company would be by choice. The shares then slid back to about $8 in March, and SALE was once again a double net, with about $4.50 per share in cash. He who hesitates is lost, and before I could put pen to paper again, it was announced a couple weeks ago that the company agreed to be taken private for $630 million, or $11.60 per share.
Not exactly a great success story, considering where shares were trading over the summer, but it still was another double-net that was acquired. The RetailMeNot deal comes on the heels of a significant amount of double-net acquisition activity last year, including Ingram Micro in February, Rofin-Sinar Technologies in March, and Skullcandy over the summer.
I'm surprised there have not been more double-net acquisitions in this market environment, especially among double-nets that are flush with cash. The other candidates I mentioned last June -- AVX Corporation (AVX) and Benchmark Electronics (BHE) , up 48% and 28%, respectively since that June column -- remain double nets.
Others that I had hoped for included FreightCar America (RAIL) and Kulicke & Soffa (KLIC) . FreightCar America has struggled, even making its way into net-net land (trading below 1x net current asset value), and now trades at 1.06x net current asset value. Kulicke & Soffa, on the other hand, has prospered, with its shares up more than 80% since September. KLIC now trades at 2.5x net current asset value, still a relatively cheap valuation, but out of double-net land.
Kulicke & Soffa not has only been putting up better-than-expected earnings results, but also stands to benefit from tax reform. With much of the company's cash held offshore, shares theoretically are more valuable if the company had the ability to repatriate cash at much lower tax rates than are in place at present. It is unclear how much of that, if any, is already priced in.
In future columns, I'll endeavor to identify more potential double-net acquisition candidates.
