While it's slim pickings still in "double-net" land, a couple of new double nets have fallen out of the value tree.
Double nets are companies whose stocks are trading at between one and two times net current asset value or NCAV. Now for the disclaimer: Companies trading at such a low multiple of net current asset value (calculated by subtracting all liabilities from current assets) often fall to that level for good reason.
The trick is to find those that are truly cheap, that the market has overly punished. While it is a strategy that does not always work, it has been fertile hunting ground for acquisition targets, at times, over the years.
Energy and industrial products distributor NOW Inc. (DNOW) is new to double net land, and currently trades at 1.87x NCAV. The shares are down more than 50% since February, despite better-than-expected first quarter earnings, and in-line second quarter results.
NOW's exposure to the oil industry has been a drag on the stock. Currently trading at about 21x next year's consensus earnings estimates, the company ended the second quarter with $80 million in cash, and $74 million in debt. Debt levels are considerably lower than one might expect for the industry.
The other newbie is online and on-campus postsecondary education name American Public Education (APEI) . I admit that I cringed a bit when I saw this name on the list, as for-profit education names have struggled mightily in recent years, as well as suffered through some scandals.
APEI, which went public in 2007 at $20/share, is profitable, but has seen both its top and bottom lines slipping over the past five years. It still boasts decent net profit margins -- 8.6% in 2018 -- but that is down from 13.5% in 2012.
APEI shares have fallen off a cliff since early August, and are down about 34% since. Much of that damage was done on Aug. 7, when the shares retreated 23%, following weak guidance issued in the second-quarter earnings release.
Declining enrollment is the big issue. The balance sheet is fairly solid; APEI ended its latest quarter with $221 million, or about $13.38 per share, in cash and no debt. The shares closed Tuesday at $22.26 and trade at about 18x next year's consensus earnings estimates.
That's the scene in double-net land, with not a lot to impress this value investor right now.