Negative Enterprise Value Screen for Net Nets

Negative Enterprise Value Screen for Net Nets

I was reading a post by Magic Diligence on Why and How to Use Enterprise Value in Evaluating Stocks and realized I could find companies trading at less than cash per share quite quickly. By searching for companies with negative enterprise values, the screen would also ensure that the companies have manageable debt as well as the business being non capital intensive e.g. airlines and oil industry. Add in a couple of extra criterias such as an enterprise value/revenue < than 1 and a ROE of > 0 to try and filter out unduly cheap companies.

You can run the screen yourself at Yahoo.

Screen & Results

The screen criterias are:

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Activist hedge fund Third Point LLC recorded a profit of 1.9% in January, according to a copy of the firm's latest performance tear sheet, which ValueWalk has been able to review. These figures seem to suggest that the hedge fund managed to make the most of January's market volatility, as other hedge funds struggled. The Read More

  • Enterprise value <= 25m
  • Enterprise value/Revenue <= 1
  • ROE >= 0

From the results, there were two that stood out.

Global Sources LTD (GSOL)

Global Sources Ltd. is a business-to-business (B2B) media company that provides information and integrated marketing services, with a particular focus on the Chinese market. Buyers rely on the Company’s media to stay up to date with available purchasing opportunities. Suppliers use its media to find new buyers and markets for their products. Suppliers using the Company’s four primary channels: online marketplaces, print magazines, trade shows and direct online sales, are supported by its advertising creative services, education programs and online content management applications.

Current Price: $3.67

Cash per share: approx $3.55 (according to Yahoo)

Other Quick Points:

  • FCF positive
  • Recently completed a tender process at $8 per share
  • Impressive margins and performance metrics

Heidrick & Strugg (HSII)

Heidrick & Struggles International, Inc. (Heidrick & Struggles) is a provider of executive search and leadership consulting services. The Company helps its clients build leadership teams by facilitating the recruitment, management and deployment of senior executives for their executive management and board positions. In addition to executive search, Heidrick & Struggles provides a range of leadership consulting services to clients.

Current Price: $14.33

Cash per share: $14.03

Other Quick Points:

  • FCF positive for past 3 years
  • Fair value somewhere around $20-$30

Other Results

These companies are not trading at negative enterprise values but are very close.

Tandy Leather Factory, Inc. (NASDAQ:TLF)

Horsehead Holding Corp. (NASDAQ:ZINC) – One of Pabrai’s holdings

Tuesday Morning Corporation (NASDAQ:TUES)

Build-A-Bear Workshop, Inc (NYSE:BBW)

DivX Inc (DIVX)

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