Over the past several months, the markets have been very stingy at providing companies for "free" -- that is, names that are trading at less than net cash (cash less all debt). Of course, this idea is theoretical: Nothing is ever free in the markets, and companies trading below net cash usually have enough fleas to keep the veterinarian busy for a long time.
In late January, small-cap Richardson Electronics (RELL) was a freebie -- trading for just over $5, with $6.16 a share in cash (the company has no debt). But the company's fleas included falling revenue and six consecutive quarterly losses.
Six months later, that losing streak has extended to eight quarters. But shares have risen more than 20% since late January from a total-return perspective. Admittedly, that's not stellar on a relative basis, given that markets generally have trended upward this year.
But in RELL's case, the most recent results showed that losses have narrowed considerably and the fourth quarter was nearly break-even. Revenue rose 13.5% from the same quarter last year, and the loss was just $0.01 per share -- vs. a loss of $0.15 last year. The company ended its fiscal year with $70.5 million, or about $5.50 a share, in cash and investments. Until the company completely stops the bleeding, it is conceivable that RELL will continue trading near its level of cash and investments, but 4Q was, at the very least, encouraging.
Meanwhile, RELL continues to appear cheap on some additional metrics, as well -- keeping in mind it is all in the eye of the beholder. The company is still a net/net -- currently trading at just 0.73x net current asset value (current assets minus all liabilities). In addition, it trades at just 0.6x tangible book value per share, and yields 3.9%. The company has continued to buy back stock and has reduced shares outstanding by 6% over the past year.
Par for the course with a company this size is that it garners little, if any, investor interest, and is covered by just one analyst -- so the "consensus" is very thin. Estimates for next quarter are for revenue of $27.6 million, and a loss of $0.06 a share.
Nonetheless, since taking a position in this stock, I've been happy to plow the meaty dividend back into shares -- creating my own mini-buyback program, while I await better days and fewer fleas.
Shares are no longer "free," but it's a fair price for improving results.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider RELL to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.