My favorite hunting ground to discover potentially bargain-basement companies (and sometimes "basement" is the operative word, because these companies may be so distressed that they'll never get out alive), "net/nets" (companies trading below net current asset value or NCAV), has been somewhat barren for quite some time. The ranks typically grow during times of market distress, but even after a rough start to 2022, there are still just a handful of net/nets with market caps in excess of $100 million.
The current crop includes Tutor Perini (TPC) , Acacia Research (ACTG) (the same name that backed Starboard Value in a bid for Kohl's (KSS) ), repeat offenders Hurco (HURC) and Gencor Industries (GENC) , as well as XL Fleet (XL) , and Talkspace (TALK) .
All but TPC and ACTG are currently unprofitable, and overall, the rest are not a very impressive bunch. That's not uncommon within this pond; many that end up here are distressed in one way or another, and the objective is to identify the diamonds in the rough.
Of those in which I currently have a position, TPC currently trades at 0.66x NCAV, and is expected to earn $2.08 per share in 2023, which puts the forward price/earnings ratio at 5. ACTG trades at 0.71x NCAV, and is expected to post a per-share loss of $0.04 next year.
Further down the list is a familiar name, fitness company Nautilus (NLS) (I have a small position due to the company's inclusion in my 2021 Triple Net Active Versus Passive Portfolios), which has cratered, and appears to be priced for bankruptcy. NLS is down 66% year-to-date.
NLS has a history of "near-death" experiences followed by resurgences -- one from 2008-2012, and the most recent from 2019-2020. It's unclear if the company can weather the current storm, and by pushing it into net/net land, the market appears to be presuming that the company won't recover.
NLS is now expected to lose money the next two fiscal years, and ended the latest quarter with $14 million in cash and $29 million in debt. For the recently reported fourth quarter, revenue of $120 million missed the consensus by $2 million, while a loss of $0.56 per share was $0.02 ahead of estimates. For the full year, the company generated $590 million in revenue, and lost $0.65 per share.
The pandemic was very friendly to NLS; the shares rose from the $1 range in March 2020, to about $30 by the following February. It's been downhill ever since, though. Can NLS pull off another miracle? I'm not sure, but the short-sellers don't think so, given the company's current 19% short interest ratio.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider HURC, GENC, XL and NLS to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
