Frank Voisin is a value investor and independent analyst whose site, Frankly Speaking, contains Frank’s investment theses as well as educational material to help investors avoid value traps. Subscribe to Frank’s feed here.

Epolin Inc (OTC:EPLN) manufactures and markets proprietary near infrared absorbing dyes and dye formations (such as those used in eyewear). The company trades not far above its NCAV, but its operations appear to be in decline, with revenue decreasing each of the last five years and the most recent quarter showing profits dipping into the red.

The good news is that the company is actively marketing itself for sale, having engaged Millburn Capital Group in February 2009 to help “explore strategic alternatives” (with little cash to perform an acquisition on its own, we can safely read this to mean a merger or outright sale). The company had gone so far as to enter into a letter of intent, but a deal eventually proved elusive.

The bad news is that there appears there may be little reason for a suitor to pay much more than tangible book. As discussed, the company’s sales have been in decline, and even at its 52 week low and P/B of ~0.96, the company is trading at a high multiple of normalized earnings. What could justify a premium?

There is a chance the company’s most recent quarter is an anomaly and that profitability will soon return (the company has been consistently profitable despite the downturn in its revenue). As the economy regains its footing, revenue might return to 2006 levels and profitability may pick up. For that reason, it might be worth keeping an eye on, especially since we know the company is actively pursuing a catalyst event. All else equal, I’d rather invest in a company determined to sell itself!

Author Disclosure: No Position