|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Hopefully, It Deswell!
Posted by: Barel Karsan (IP Logged)
Date: October 29, 2012 12:51PM
The following is a guest post written by Phil Kazmaier, who has written for this site before:
Deswell Industries (DSWL) owns and operates a factory overseas specializing in production of plastic molded components (such as the casing your remote control) and precision electronics (like the sweet surround sound system your remote control operates).
The company recently suffered from the often fatal disease known as customer concentration as evidenced by the fact that in year ending March 2011 major customers (with >10% sales) accounted for 42% of total company sales. However I say "recently suffered" because during fiscal 2011 they went through invasive surgery to remove the disease, as their sales to major customers in year ending March 2012 fell to only 12%. (And all the small cap growth investors said "OUCH"). The question we must answer is, will the patient survive?
Fortunately for Deswell, they carry no debt and 44M in cash reserves and short-term investments against a market cap of......only 44M? On top of that, they have managed to generate 20M in FCF over the past 3 years despite the Felix Baumgartner-like drop their sales have taken. Lastly, none of this analysis accounts for land that they leased with an up-front payment from the government of China for 50 years (expiring in 2050), the benefits of which you can get for free at the current price.
Before getting too excited about this company, let's check the incentives. There we see that the chairman of the board owns 5.2M worth of the company, another board member (and ex-CFO) owns 4.7M, and the new president owns 550K worth of stock (all at current prices). Seems like the kind of setup where management wants to drive value for the poor small cap shareholder.
Time for the cherry on top: the company also pays a 7.3% dividend. But before you get too excited, this is a Chinese company and therefore each investor will need to decide if something that seems too good to be true actually is.
Disclosure: Author of the article is long shares of DSWL
Stocks Discussed: DSWL,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.