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Coast Distributes Some Gains

August 15, 2013 | About:
Barel Karsan

Barel Karsan

17 followers
Less than two years ago, Coast Distribution Systems (CRV) was brought up on this site as a potential value investment. Following the release of the company's results yesterday, the shares went flying, having doubled from their 2011 and 2012 lows.

This was a classic net-net. The company traded at a massive discount to its net current assets because its earnings were either negative or unimpressive (depending on the quarter). But yesterday's results were actually good. The company finally made material progress in achieving sales and profits by moving new products through new distribution channels. As a result, the company spent a large part of the day trading very close to its net current asset value.

I didn't know Coast would be successful in this new endeavour. I simply owned it because it was worth much more than it was trading for. In this case, the company's operations (along with a buoyant market) turned out to be the catalyst to getting fair value. But because the downside was protected in this investment, the risk vs potential return ratio was very favourable.

Another interesting tidbit to this story are the insider trades. The company's chairman and the largest holder of the stock has been selling his shares over the last few months at much lower prices. This illustrates that even though insiders may have a better read on the company than do the rest of us, they still have no idea (just like the rest of us!) what capital markets are going to do.

Disclosure: No position

About the author:

Barel Karsan
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 5.0/5 (1 vote)

Comments

Prislapp
Prislapp - 6 months ago
Hey Barel, I have been looking into CRV and I'm wondering if the stock really has been a net-net in the past few years. If you just look at the balance sheet it is a net-net. But they have operating leases of about $13M and if you adjust for this the stock is trading above NCAV. Is it not correct to do that adjustment?Thanks for your posts, I've enjoyed a lot of them. 

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