Finding hidden value is part of the job for Mark Spiegel, manager of Stanphyl Capital, which is why we asked him to feature in one of the first issues of ValueWalk’s premium newsletter, Hidden Value Stocks.
Mark picked out four of his favorite small caps for the issue including Lantronix, which he believed was indeed a hidden gem:
“With $38 million of annual run-rate revenue and $3.1 million in projected net cash at the end of the current (March 31) quarter (four years of normalized burn even assuming no improvement) and 15.23 million shares outstanding, at the current price of .89/share this is a 48% gross margin company currently selling for less than 0.3x revenue with approximately $90 million of federal NOLs and $30 million of state NOLs. So an acquisition price of just 1x revenue plus the net cash plus a few million bucks for the NOLs (heavily discounted for the change-in-control limitations) would value Lantronix at over $3/share…several of the company’s board members agree with me as they recently bought stock in the open market.”
This thesis was initially published in the Spring 2016 issue, which went out to subscribers on March 28, 2016.
Deep Value Stocks Uncovered
Over the next year, the stock surged. At the time of the initial Lantronix was trading below $1.00 per share but has since rallied by more than 260%. According to Mark, Lantronix’s positive performance during 2016 was a result of “tangible operating improvements brought about by its new management team, ” and while the stock has continued to rally, Stanphyl started to take profits in late 2016 “in the high $2s and low $3s.”
To ensure a fair playing field, all of the stocks in the Hidden Value Stocks portfolio are held for one year from initial publication. In this case, the total return for holding over the one year period is 267%.
This is just one of the hidden, undervalued, unloved stocks we’ve profiled in Hidden Value Stocks since it was first launched at the beginning of 2016. Over the period, the newsletter has featured 13 hedge funds, which have picked out a total of 26 stock ideas. The average return of each idea is 28% (one year holding period to December 11), and on a cash basis, a $1,000 investment in every idea rolled over every 12 months has generated a total return of 45.3%.This is not a backtest and we used the same formula since the beginning.
Each newsletter subscriber not only receives a detailed investment thesis on each idea, but we also provide direct access to the funds profiled as well as their quarterly updates.
Check out the teaser issue below, and if you’re interested in signing up to Hidden Value Stocks click here.
Prices go up at midnight December 31st 2017!