Value investing is certainly not for everyone. It requires an extreme amount of patience in an investment landscape that exhibits very little of that attribute. It requires the discipline to go against the crowd, even when the crowd is cleaning up with names that you'd likely never touch. It's a bit of a lonely world at times, and can be boring as well, especially when there's little in the way of value to be found. I've come to the conclusion that most investors either are wired for growth or wired for value, and once they figure out which camp they are in, it's difficult to alter.
Value investors spend their time turning over rocks, looking for something interesting -- a diamond in the rough, a company that may have some struggles that are well priced in. When we find these, we tend to hang on to them until the market realizes their value or until it becomes clear that we made a mistake. Instant gratification is rare; it's nice when it happens, but not expected.
There certainly was no instant gratification with Richardson Electronics (RELL) , a small name I've owned for a couple years. RELL is one of the small handful of investable net/nets (companies trading below net current asset value) available these days.
While the company has been showing some signs of life this year (it's up 15% year to date), it stumbled on Monday, falling 8% after reporting disappointing revenue. With little analyst coverage, there's no consensus to speak of in terms of revenue and earnings, but the 10% drop in revenue versus the same quarter last year was clearly a step back as the company attempts to get back to profitability, especially given the progress shown in the fourth quarter.
Two steps forward, one step back, but the value story remains intact. Currently trading at just 0.74x net current asset value, the balance sheet remains solid. RELL ended the quarter with $66 million, or $5.14 per share, in cash and investments and no debt. Shares also trade at just 0.64x tangible book value per share. While cash balances have declined over the years, part of that is due to the fact that the company has reduced shares outstanding by 28% since 2011. The company also pays a six-cent quarterly dividend and yields 3.5%. There just is not a great deal of interest in the stock.
I recently also took an initial position in something even rarer -- a profitable net/net, West Marine (WMAR) -- that I've danced with for quite a while. Part of the hesitancy has been my caution on retail net/nets over the years, but I finally decided to take the plunge in this boating retailer (no pun intended).
WMAR currently trades at about 0.9x net current asset value, 0.66x tangible book value per share, and ended its latest quarter with $90 million, or $3.60 per share, in cash and no debt. This one garners some analyst coverage and is trading at 24x 2017 consensus earnings estimates.