With little to be excited about these days in deep value's net/net land (i.e., companies trading below net current asset value), it was nice to see a former net/net name recently rejoin the currently small group. Attaining net/net status is not something companies aspire to -- the best case is that they are extremely cheap and ignored by the market; the worst case is that they are in varying stages of decline.
This week, specialty boating retailer West Marine (WMAR) has made yet another appearance on the list. If you are not familiar with the company, it operates 258 stores in 38 states. This highly seasonal business generates the bulk of revenue and profits in its second and third quarters. Last year, those quarters represented 64% of revenue.
The company recently has been focused on increasing its e-commerce business, with a goal of 15% of total sales. Last quarter, WMAR showed progress in this area, with a 26.7% increase in e-commerce revenue versus the same quarter last year, thus increasing that segment to 10% of total revenue. There's still a ways to go, for sure, but a decent showing.
Trading at 0.99x net current asset value at present and at just 0.7x tangible book value per share last quarter, West Marine disappointed the small "consensus" of analysts who cover the company; it earned 86 cents per share in the second quarter, which was six cents below consensus estimates. The stock's punishment after the announcement was a rather small 3.8% hit on July 29. Shares have moved very little since, and what little focus there is on this company will be geared toward the expected Oct. 26 release of third-quarter results. The consensus of just three analysts is for EPS of 17 cents.
Oftentimes, net/nets are not profitable, but that isn't the case with West Marine. With the stock currently trading at 35x trailing earnings, "consensus" estimates (which in fact include just two analysts) are calling for 2017 earnings of 34 cents a share, which puts the forward price/earnings multiple at 26. As is typical for a retailer, current assets are largely comprised of inventory, but there is also $89.6 million, or $3.60 per share, in cash. That's significant for a stock that closed last Friday at $8.81. Somewhat sweetening the story is the fact that West Marine has no debt.
In addition, the company has generated $1.79 per share in free-cash flow over the trailing 12 and trades at just over 4x enterprise value to EBITDA.
