The market volatility we saw last week is starting to shake the value trees again, and whether the fruit that is landing on the ground is ready for consumption remains to be seen. At the very least, there's something to take a look at.
Within "double-nets", my homegrown term for companies trading at between 1 and 2 times net current asset value (current assets less current liabilities), there are a couple of new candidates. Note that at this point they are candidates, and not necessarily investable.
PDF Solutions (PDFS) is a new name to me. The technology company, which optimizes the performance of integrated circuits, has had a rough ride, and is down 45% year-to-date. Besides putting out below consensus earnings results the past two quarters, the company also took a significant hit (-14%) on August 28th when its largest customer put an initiative on hold.
As a result of a pretty solid balance sheet, and declining stock price, PDFS currently trades at 1.98x net current asset value (NCAV). It ended last quarter with $101 million or $3.15 per share in cash, and no debt. Consensus estimates for next year put the forward price earnings ratio at 24, but there is a wide range of estimates.
Construction name Tutor Perini (TPC) makes a reappearance in double net land; the stock has also had a tough year and is down 30% year-to-date. One of the knocks on the company for years has been a relatively large amount of uncollected receivables, and despite initiatives to reduce receivables, it has seemingly been unable to make much of a dent.
TPC currently trades at 1.73x NCAV; however its net current assets are primarily comprised of the aforementioned accounts receivable and inventory, which are certainly less preferable than cash and short-term investments in terms of current asset quality. While it ended last quarter with $139 million in cash, it does have significant debt, totaling $823 million. With a forward price earnings ratio of just 6, you can tell what the market thinks of the name...not much.
Shares did pop a bit (+9%) after the company reported better than expected second quarter earnings, but it has given back those gains and more since.
This is the starting point for me; discovering names that meet my deep value criteria, then doing a deeper dive to either get comfortable taking a position, or steering clear. In double net land, you are typically dealing with companies that may have a few fleas, and are trying to determine whether the market has it wrong, whether the fleas can be eradicated, or whether they are already priced into the story to a much greater extent than is warranted.
Who knows, this pair may even make it into my 2019 Double Net Value tracking portfolio, scheduled for late December release, but a lot can happen between now and then.
