Investment techniques come and go, but one of my favorites for distressed names, companies trading below net current asset value (or "net/nets") is seemingly on its last legs, at least at this point in the U.S. It is a Ben Graham based technique that I'd devoted an entire website to several years ago. But due to a variety of factors, including rising markets and the recognition of the efficacy of the net/net concept itself which has put the concept more into the mainstream, the pool of qualifying companies has continued to shrink.
At the time of my last (April) column on the subject, there were qualifying nine names with market caps in excess of $50 million, now there are just six. I've retained reams of old net/net searches from years ago when there literally were hundreds of qualifiers, usually, but not always after markets have turned south. This is a different time, but, if and when markets suffer some downside turbulence, we will again see the ranks of net/nets grow.
On Thursday, net/net VOXX International (VOXX) had a good day, rising 9.5% after reporting first quarter earnings. With no analysts covering the name, there is no earnings surprise story as this is more of an asset story. VOXX, which trades at .84x net current asset value (NCAV), calculated by subtracting total liabilities from current assets. The company ended the quarter with $63 million or $2.60 per share in cash and securities, and $17 million in debt. In addition, due to asset sales, VOXX anticipates that its cash coffers will grow by another $31 million, once its German Accessory Holdings business and Pulheim, Germany real estate assets are sold. The company has announced intentions to repurchase up to three million shares, and is also exploring cash dividends, but the proof of both is in the pudding.
VOXX has been a very disappointing story over the years. It should be trading much higher relative to company assets, and has a current tangible book value of more than $9 per share, while it closed Thursday at $4.50. It has languished in net/net land, and poor performance has drawn the ire of its largest shareholder, Kahn Brothers, which owns about 17% of the company. If you want to see/hear some heated dialogue between Kahn Brothers and company management, check out the Q1 earnings call, or read the transcript. You've got to wonder whether there's an activist fight brewing.
Other current net/nets include Acacia Research (ACTG) , Flexsteel Industries (FLXS) , Richardson Electronics (RELL) , and Key Tronic (KTCC) . More on these in a future column.
