It's time once again to begin evaluating my bench for companies trading at relatively low levels of net current asset value (NCAV). To do that, I look for what might be the next crop of double nets (companies trading at between 1x and 2x NCAV), by relaxing the search criteria to search for "triple-nets", or companies trading at between 2x and 3x NCAV.
By way of the history of this search, I first started screening for double nets several years ago when the availability of net/nets, or companies trading at less than 1x NCAV, was drying up. Double nets ended up being a fairly compelling area of the market, with many of these being acquired over the last several years.
Screening criteria for triple nets is the following:
- Market capitalization in excess of $100 million
- No financials or development-stage companies
- Trading at between 2 and 3 times NCAV (NCAV is calculated by subtracting a company's total liabilities from current assets)
In last November's screen, 53 names made the cut, however those specifically mentioned in that column, AVX Corp. (AVX) , Universal Corp. (UVV) , PC Connection Inc. (CNXN) and Movado Group Inc. (MOV), Cato Corp. (CATO), Vera Bradley Inc. (VRA) , Shoe Carnival Inc. (SCVL) and Citi Trends Inc. (CTRN), Crimson Wine Group (CWGL) , and First Solar (FSLR) have not performed well overall. That group is down about 10% on average, while the Russell Microcap is down 8% over the same period, very disappointing results. However, all 53 names were up an average of about 3%, so perhaps the scatter gun approach (indexing) is worth following.
At this writing, 48 numbers qualify, and while I'll be revealing the more interesting ones in future columns, I also plan on tracking the performance of all of them over the coming year. This will be putting "active management" of triple nets per se, to the test versus indexing - last year, indexing won.
As a preview, the largest name on the list is $2.7 billion technology company LiveRamp Holdings (RAMP) . If that seems unfamiliar, it was formerly Acxiom Corp. RAMP currently trades at 2.78x NCAV, and has just over $1 billion, or about $14.50 per share in cash. Not currently profitable, consensus estimates are calling for it to be in the black next year, and ramping up earnings the following year to the tune of 86 cents per share, which implies a two year forward price earnings ratio of 46.
Here's one other teaser for now, but it likely won't surprise anyone: also making the cut is down and out Fitbit (FIT) . FIT trades at about 2.58x NCAV, and ended last quarter with $565 million, or $2.21 per share in cash. The company is all but hated by many at this point, and can't seem to do anything right in their eyes. I for one increased my position after the stock was hammered upon the release of second quarter earnings.