Deep value small cap: Holds 70% of market cap in cash, 11% revenue growth, and 25% is owned by a multi-national giant...
Fish where the fish are.
The pioneer of value investing, Ben Graham, would advocate for buying companies for less than their book value. An even better situation is if much of the book-value is actual cash instead of land/equipment (where the value of the property is more subjective). Graham would prefer companies with a cash pile as big as the market cap, where investors essentially get the operating business for free. Another important characteristic of a good net-net investment would be a history of profitability. After all, what use is a large cash pile if its being slowly depleted with operating losses? A company that can turn a profit will be able to protect its cash pile like a dragon hoarding treasure (you should go watch The Hobbit for a visual representation).
There are two problems with this Deep Value approach.
It is hard to find net-nets in the U.S market today. Investing is more competitive compared to the 1930s/1940s, where valuations were depressed after a tremendous recession.
The market may take time to recognize the intrinsic value of a company, delaying investor returns and decreasing annualized performance.
The large cash pile may not be deployed in the interest of shareholders. This is a common criticism of many Japanese firms, that prefer to conservatively hoard cash.
Nowadays, Deep Value plays can be found in international small-caps that are less likely to get the attention of investing firms. The market can be less efficient in other parts of the globe. With less participants, the “Efficient Market Theory ®” tends to fall apart. This is to the advantage of small investors.
The company being highlighted today is for premium members:
The company has 70% of its market cap in cash/cash-equivalents. No net debt.
PE ratio of 8.
Revenue growing at 11%. This isn't just a cigar-butt. The entire industry is growing as well, providing a nice tailwind.
It pays out a respectable 5% dividend, investors get paid to wait. The current dividend is higher than the previous year.
A big multi-national company on the SP500 owns 26% of this small cap, a sign of confidence for small investors.
Let’s get into the details…