3 New Faces Pop Up in Deep-Value Land

 | Sep 22, 2017 | 12:00 PM EDT
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The good news, at least for this value investor, is that the market has been kind enough to grace us with a couple of new double nets -- that is, companies trading at between 1 and 2 times net current asset value, or NCAV. Unfortunately, companies may be trading at that relatively low multiple of NCAV for good reason, and a recent price drop versus an improving balance sheet may be one of them.

Super Micro Computer Inc. (SMCI) is new to double-net land, not a repeat offender as I often see. It's also new to me. The end-to-end computing solutions name has taken a big hit the past month, dropping about 20%. Much of that damage occurred in the past week after the company announced that its 10-K filing with the Securities and Exchange Commission will be delayed due to an audit. That type of uncertainty is never good for a stock. Super Micro Computer currently trades at 1.82 times NCAV. The balance sheet is decent, with $113 million, or $2.31 per share, in cash and $60 million in debt.  The forward price-to-earnings (P/E) ratio is just under 11. But we don't know what we don't know in terms of the 10-K delay.

Office supply name Essendant Inc. (ESND) has had a rough year, down about 40% year to date. A fourth-quarter earnings release that was much worse than expected is the culprit for much of the damage, and the stock has been unable to recover. Currently trading at 1.92 times NCAV, the balance sheet is about what you might expect for this type of business, which is heavy on inventory and receivables and light on cash. The stock trades at just under 10 times next year's consensus estimates and yields 4.5%. It's difficult at this point to get excited about this name, but I will be watching it.

Finally, there's Digi International Inc. (DGII) , which provides M2M and IoT connectivity products and services. Down about 30% year to date, Digi International currently trades at 1.78 times NCAV. This cash-rich company ended its latest quarter with $109 million, or just over $4 per share, in cash and short-term investments and no debt. The stock trades at about 24 times next year's consensus estimates, which is not a crazy number, especially when you consider that it has 42% of its market cap in cash.

This is the type of company -- a cash-rich, technology-oriented double-net -- that we've seen acquired over the past couple years. Indeed, it received and rejected a bid of $13.82 a share -- 42% above its current price -- from Belden Inc. (BDC) last November.

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