A quick trip to Nebraska to see clients and friends included, among other things, a chance to order Rocky Mountain oysters (if you don't know what those are, look it up) at one of the locals' favorite spots. I declined, and not only that, vowed to never try what is considered a delicacy out west. One in our party ordered an entire basket of these deep-fried sensations, but when he offered me one I said, "No thanks."
I've said "no thanks" a great deal as well when it comes to investment selection; but there are times when names that I never would have considered owning became too compelling to pass up. As a value investor, that often can be at a point when a former growth darling or cult stock is rejected by the growth crowd. Leaving in droves, they dramatically can depress a stock's price. Sometimes this punishment is well-deserved, so there can be great risk here.
I said yes to handbag maker Vera Bradley Inc. (VRA) , a name I never thought I'd own, and one that continues to slide, trading at an all-time low while markets are at all-time highs. Indeed, Vera Bradley's chart is nearly the complete inverse of the S&P 500 chart since VRA went public back in 2010. That does not make Vera Bradley cheap or ripe for a recovery; the fact remains that the company operates in an industry that is struggling greatly.
Rather, the thing that makes the name interesting is that it currently trades at just 1.82 time net current asset value and just under tangible book value per share. Furthermore, Vera Bradley ended last quarter with $102.3 million, or $2.83 per share, in cash and no debt. That makes for an enterprise value (market cap plus debt minus cash) of less than $200 million. Despite its fall from grace and it operating in a challenged industry, Vera Bradley is still a well-known brand name that may be fair game for a bigger fish looking to grow its brand portfolio.
Despite its woes, Vera Bradley remains profitable, trading at 21 times trailing earnings, about 9 times trailing free cash flow, and less than 4 times enterprise value to EBITDA. Little has been expected of VRA, but it has exceeded earnings estimate the past three quarters. Estimates for next year put the forward price-to-earnings (P/E) ratio at just under 15. Still, the name remains unpopular, and as of late September short interest was more than 4.1 million shares, making a short squeeze possible at some point.
This is not the type of name I will go all-in on at once, but opportunistically will take smaller bites. Third-quarter earnings are not expected to be reported until Dec. 6, with current expectations calling for revenue of $114.8 million and earnings per share of 14 cents.