There are some new names in "double-net" land -- the place where companies trade at between one and two times their net current asset value, which can represent a very cheap valuation. But it's a place where no company would go voluntarily. It's a mish mosh of names that investors have given up on, seemingly cheap technology companies, small retailers, other assorted (or sordid) stories and value traps.
Double-nets are based on a screening technique that I came up with several years ago in order to identify a layer of companies just above net/nets, which trade below net current asset value. With the population of net/nets drying up over the years, and near extinction at this point in the market cycle, double nets have been a fairly fertile hunting ground for value.
Recently, a former cult-like stock, Crocs (CROX) , which had been given up for dead following its meteoric rise above $70/share in 2007, and subsequent fall to $1 the following year, made the cut. It was one of the ultimate fad stocks, and until seeing it hit my screen, I'd all but forgotten about it. Low and behold, Crocs is alive and well (sort of), and doing more than $1 billion in annual sales. Sales have been falling or flat over the past five years, and the company has been in the red the past two years and likely for 2016, but prospects may be improving.
Consensus estimates are calling for a return to profitability in 2017 and 2018, and the stock currently trades for about 20x 2018 consensus earnings estimates. That's certainly not cheap, but with $2 per share in cash, and less than $4 million in debt, Crocs' balance sheet is in good shape.
The shares also trade at about 1.74x net current asset value. Interestingly, the company has been buying back shares over the past four years, a period of general decline for the stock, and has reduced shares outstanding by 18% since year-end 2012.
Another recent entrant is offshore-drilling name Dril-Quip (DRQ) . Despite struggles in the industry given falling oil prices, and major declines in revenue, the company has maintained solid net profit margins, in the 22% area the past three years. DRQ shares have fallen 50% the past two years.
On the bright side, the company ended last quarter with $543 million, or $14.50 per share, in cash and no debt, and trades right at 2x net current asset value. It is in an out-of-favor industry at this point -- OPEC's recent production cut announcement and an uptick in oil prices notwithstanding -- and consensus estimates are calling for a substantial reduction in earnings the next couple of years.
Time will tell whether either or both of these names are cheap, or just run-of-the-mill value traps.