Richardson Electronics, Ltd. (NASDAQ:RELL) is a global provider of engineered solutions and a leading distributor of electronic components to the electronic device marketplace. Specifically, the company’s Visual Technical Solutions division delivers customer display solutions to a diverse customer base, and the company provides technical services for the satellite communications market. Richardson has a market capitalization of $134 million and an average daily volume of 18,000.
Struggles of Richardson Electronics
Richardson Electronics, Ltd. (NASDAQ:RELL) has been struggling during the past few years. The company has been grappling with falling revenues and high fixed expenses, which resulted in the company reporting a miniscule operating income of $11,000 for fiscal 2013, despite reporting sales of $141 million — an operating margin of 0.007 percent. Furthermore, a series of foreign exchange losses and fair value adjustments pushed the company into a full year loss.
What’s more, these losses have continued into the first quarter of fiscal 2014, which the company reported on Wednesday. For fiscal Q1 2014, the company reported an operating profit margin of 1.4 percent.
Richardson’s share book value
Nonetheless, Richardson Electronics, Ltd. (NASDAQ:RELL) is attractive due to its current discount to book value. Actually, after selling off some of its facilities during fiscal 2013, Richardson reported a year-end cash balance of $102 million (this in itself indicates that if Richardson were to cease operations and just invest its cash balance, it could be more profitable) a net shareholder equity of $185 million, and a book value of $14.50 per share.
However, at the end of recently reported fiscal Q1 2014, the company’s cash balance had fallen to $92.5 million. Although, the company used this cash to repurchase 0.64 million shares during the quarter, 4 percent of diluted share capital. This buyback boosted book value per share to $14.87, offsetting the reduction in cash.
Moreover, at its current market capitalization, Richardson Electronics, Ltd. (NASDAQ:RELL) is trading below its net-nets value. Indeed, at the end of fiscal Q1 2014 the company had $194 million in current assets, $19.7 million in current liabilities and $7.8 million in non-current liabilities. Current assets minus total liabilities give a figure of $166.5 million, below the current market cap of $135 million. Including non-current assets of $13.7 million, shareholder equity rises to $180 million.
Having said all of that, despite trading at a net-nets discount, Richardson Electronics, Ltd. (NASDAQ:RELL) still lacks any significant catalyst to re-rate the stock. Additionally, the company trades at a trailing-twelve-month price-earnings ratio of 370, which almost makes Tesla Motors Inc (NASDAQ:TSLA) look cheap. However, as I have already mentioned, Richardson’s management is buying back stock, but so far this activity has failed to support the share price. Still, management has stated that they are committed to returning cash to shareholders and have maintained a quarterly dividend payout of $0.06, an annualized yield of 2.2 percent and continue to repurchase stock.
So overall, Richardson Electronics, Ltd. (NASDAQ:RELL) presents an interesting opportunity. The value on offer is tempting but the company continues to lose money and it remains to be seen if they can turn things around. Additionally, dividends and stock repurchases have so far failed to support the share price, which is down 2 percent year-to-date, but the company still has a large amount of cash in the bank to fund itself for several years.