I started my research for ADPT Corporation at the company’s website, and immediately something unusual caught my eyes, for it reads (emphasis mine):
Benjamin Graham Net Current Asset Value Screener
Let’s back off a little. I confess, I did not woke up and decided that I need to do research on ADPT. It came to my attention as I was glancing the companies showing up in the Benjamin Graham Net Current Asset Value Screener, where GuruFocus sorts out the companies selling at below net current asset minus all liabilities. The father of Value Investing, Ben Graham, was the first proponent of the idea. At times, he bought buy 100s of these companies and did very well. Essentially, if you count only a company’s current asset and assume all the liabilities, the company worth still more than the Mr. Market would care to give it credit for. Warren Buffett uses the term “cigar butt” to describe these stocks. They do not appeal to one’s eyes but they have one puff left. As a group, they could offer good returns, as they did for Graham and Buffett in early years.
ADPT is a Net-Net Stock
According to the ten-year financial data available at GuruFocus, as of September 30, 2010, the company has a total current assets of $384 million, including $67 million in cash, $299 million in short term investment, and $14 million other current assets. The company’s current asset contains no inventory, which tends to worth much less than book value in a fire sale. Counting only the cash and short term investment, it amounts to $366 million.
On the liability side, the company lists a total liability of about $15 million, including both long ($9.23) and short term ($5.63).
Subtracting ALL the liability from the current asset, we reach a Net-Net value of $351 million. As of today, ADPT has 111.19 million shares outstanding and is trading at $2.87 per share, giving a market cap of $326 million.
ADPT is selling below its Net-Net value at a discount 93%.
NOL Tax Benefits
As indicated in the paragraph I cited at the beginning of this article, one of the things the company intends to do is to “maximize the use of the Company's net operating losses”. Note 14 of the company’s 2010 annual report for the year ended on March 31, 2010 shows that company has a Net Operating Losses (NOL) of $21 million shares. The company calculated the net tax benefit from this NOL to be about $2.5 million, if it can be realized.
The Latest 10Q put the NOL at $24 million, going up slightly after six months.
Saj Karsan had an article discussing how ADPT can use the NOL for tax benefit. To do it does not sound very easy.
So forget about it. A couple of millions of the tax benefit is no material to the value proposition of the stock.
Gurus and Insider Buying the Stock
Such a discount caught the eyes of the Investment Gurus: as of September 30, 2010, Donald Smith owns 957,454 shares; Richard Pzena owns 1,344,064 shares.
It worth mentioning that the firm of Mario Gabelli, a long time value investor, initiated a position of 522,500 shares on October 1, 2010 at the price of $2.95. His firm bought more shares on November 15, 2010 at around $3. Stock is selling for less that the prices Gabelli paid it for.
An insider The company’s largest shareholder, Steel Partners II LP has been accumulated more shares vigorously. The following table lists of transactions in which Steel Partners purchased shares during the last year:
After the last transaction on August 31, 2010 as listed above, Steel Partners owns about 36 million shares, or about 1/3 of the total 111 million shares outstanding.
Company’s Strategy Including Buying Back Shares
This quote is from the company’s latest 10Q for the quarter ended on September 30, 2010 (emphasis mine):
Conclusion
ADPT is a net-net company whose shares are being bought by Investment Gurus, Company Insider, and the Company itself.
Although these facts still do not make the stock an outcry buy, it is a good starting point.
The truth is, ADPT only ranks 19th in GuruFocus’s Ben Graham Net-Net Screener. 18 other companies are selling at deeper discount to their net-net value.
Check it out yourself.
Also, ADPT was recommended by GuruFocus Ben Graham Net Current Asset Bargains Newsletter on July 1, 2009 issue. The newsletter recommended closing the position on January 1, 2010. The entry price was $2.65 and the exit price was $3.35. The profit for the trade was 26.42%, making this one of the least profitable trades recommended by the newsletter.
Read more about the newsletter here.
ADPT Corporation has historically provided innovative data center I/O solutions that protect, accelerate, optimize, and condition data in today's most demanding data center environments. Going forward, the Company's business is expected to consist primarily of capital redeployment and identification of new, profitable business operations in which it can utilize its existing working capital and maximize the use of the Company's net operating losses.
Benjamin Graham Net Current Asset Value Screener
Let’s back off a little. I confess, I did not woke up and decided that I need to do research on ADPT. It came to my attention as I was glancing the companies showing up in the Benjamin Graham Net Current Asset Value Screener, where GuruFocus sorts out the companies selling at below net current asset minus all liabilities. The father of Value Investing, Ben Graham, was the first proponent of the idea. At times, he bought buy 100s of these companies and did very well. Essentially, if you count only a company’s current asset and assume all the liabilities, the company worth still more than the Mr. Market would care to give it credit for. Warren Buffett uses the term “cigar butt” to describe these stocks. They do not appeal to one’s eyes but they have one puff left. As a group, they could offer good returns, as they did for Graham and Buffett in early years.
ADPT is a Net-Net Stock
According to the ten-year financial data available at GuruFocus, as of September 30, 2010, the company has a total current assets of $384 million, including $67 million in cash, $299 million in short term investment, and $14 million other current assets. The company’s current asset contains no inventory, which tends to worth much less than book value in a fire sale. Counting only the cash and short term investment, it amounts to $366 million.
On the liability side, the company lists a total liability of about $15 million, including both long ($9.23) and short term ($5.63).
Subtracting ALL the liability from the current asset, we reach a Net-Net value of $351 million. As of today, ADPT has 111.19 million shares outstanding and is trading at $2.87 per share, giving a market cap of $326 million.
ADPT is selling below its Net-Net value at a discount 93%.
NOL Tax Benefits
As indicated in the paragraph I cited at the beginning of this article, one of the things the company intends to do is to “maximize the use of the Company's net operating losses”. Note 14 of the company’s 2010 annual report for the year ended on March 31, 2010 shows that company has a Net Operating Losses (NOL) of $21 million shares. The company calculated the net tax benefit from this NOL to be about $2.5 million, if it can be realized.
The Latest 10Q put the NOL at $24 million, going up slightly after six months.
Saj Karsan had an article discussing how ADPT can use the NOL for tax benefit. To do it does not sound very easy.
So forget about it. A couple of millions of the tax benefit is no material to the value proposition of the stock.
Gurus and Insider Buying the Stock
Such a discount caught the eyes of the Investment Gurus: as of September 30, 2010, Donald Smith owns 957,454 shares; Richard Pzena owns 1,344,064 shares.
It worth mentioning that the firm of Mario Gabelli, a long time value investor, initiated a position of 522,500 shares on October 1, 2010 at the price of $2.95. His firm bought more shares on November 15, 2010 at around $3. Stock is selling for less that the prices Gabelli paid it for.
An insider The company’s largest shareholder, Steel Partners II LP has been accumulated more shares vigorously. The following table lists of transactions in which Steel Partners purchased shares during the last year:
| Insider | Position | Date | Trades | Shares | Trade Price ($) | Change (%) |
|---|---|---|---|---|---|---|
| STEEL PARTNERS II LP | 10% Owner | >2010-08-31 | Buy | 7500 | $2.88 | -5.9 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-27 | Buy | 165050 | $2.85 | -4.91 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-25 | Buy | 708300 | $2.87 | -5.57 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-23 | Buy | 1394141 | $2.85 | -4.91 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-19 | Buy | 665500 | $2.87 | -5.57 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-19 | Buy | 665500 | $2.87 | -5.57 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-16 | Buy | 983600 | $2.79 | -2.87 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-16 | Buy | 983600 | $2.79 | -2.87 |
| STEEL PARTNERS II LP | 10% Owner | >2010-08-03 | Buy | 419220 | $2.92 | -7.19 |
| STEEL PARTNERS II LP | 10% Owner | >2010-07-29 | Buy | 780 | $2.97 | -8.75 |
After the last transaction on August 31, 2010 as listed above, Steel Partners owns about 36 million shares, or about 1/3 of the total 111 million shares outstanding.
Company’s Strategy Including Buying Back Shares
This quote is from the company’s latest 10Q for the quarter ended on September 30, 2010 (emphasis mine):
We remain committed to providing value to all of our stockholders and will aggressively pursue opportunities to deploy the cash and liquid assets on hand to create value for our stockholders, including exploring acquisitions of businesses in which we can utilize our existing working capital and maximize the use of our net operating losses, or NOLs, engaging in stock buybacks, paying cash dividends, or any combination thereof. In the second quarter of fiscal 2011, we repurchased approximately 7.0 million shares of our common stock for an aggregate repurchase price of $20.2 million, excluding brokerage commissions, under an existing Board of Directors authorized stock repurchase program, which was executed in July 2008.
Conclusion
ADPT is a net-net company whose shares are being bought by Investment Gurus, Company Insider, and the Company itself.
Although these facts still do not make the stock an outcry buy, it is a good starting point.
The truth is, ADPT only ranks 19th in GuruFocus’s Ben Graham Net-Net Screener. 18 other companies are selling at deeper discount to their net-net value.
Check it out yourself.
Also, ADPT was recommended by GuruFocus Ben Graham Net Current Asset Bargains Newsletter on July 1, 2009 issue. The newsletter recommended closing the position on January 1, 2010. The entry price was $2.65 and the exit price was $3.35. The profit for the trade was 26.42%, making this one of the least profitable trades recommended by the newsletter.
Read more about the newsletter here.
