Last year, I made several attempts to try and find some Benjamin Graham-style, deep-value stocks in the market, with limited success. The stocks I found were trading for less than net asset value, but in almost all cases, they were not attractive as businesses.
Following the recent market turbulence, which has been particularly damaging for small-cap stocks over the past six months, I wanted to see if there are now any companies that look interesting from a value perspective.
Bargain stocks
My screen for net-net stocks threw up a few exciting bargains.
The first company was Nova LifeStyle Inc. (NVFY, Financial). A micro-cap stock with a market capitalization of $18.1 million, this company undoubtedly flies under the radar of most investors. However, it immediately looks interesting from a value perspective. The business is a manufacturer of residential furniture, which it sells in retail stores as well as online.
This business seems to be ticking along quite nicely. Over the last five years, revenue has grown at a compound annual rate of 9.9%, although net profit has struggled. For 2017, the group reported a net profit of $3.8 million, down from $5.4 million in 2012. It remains to be seen if the company can turn this track record around. If it does, it looks as if there could be significant upside here.
The stock is currently trading at a trailing 12-month price-earnings multiple of 2.5, which is exceptionally cheap, even for a struggling retailer concern. The stock is also trading at a price-sales ratio of 0.18 compared to the industry median of 0.8 and a price to tangible book value of 0.3.
No matter which way you look at it, this company appears to be a deeply discounted security. The balance sheet seems relatively solid with a net gearing ratio of 5.5% at the end of the last reported period.
Negative enterprise value
Moving on, the next stock to appear on my screen is Rubicon Technology Inc. (RBCN, Financial).
A quick glance at this business will tell you immediately it has problems. It has not reported a positive profit figure for the past six years. However, the company has no debt. A market capitalization of $22 million against a net cash balance of $25 million gives a negative enterprise value of -$2.55 million. The price to tangible book value is 0.6.
This company manufactures monocrystalline sapphires for applications in light-emitting diodes (LEDs), optical systems and specialty electronic devices. There are some signs that the business has started to change direction. Back in November, the board of directors authorized a stock repurchase plan to buy up to $3 million of its common stock. This is just one small step in the right direction.
FDA approval
The last company is Check Cap Ltd. (CHEK, Financial). I would normally overlook this clinical-stage medical diagnostics business, because trying to predict the fortunes of early-stage medical and biotechnology companies is almost impossible. The company, however, received a boost at the end of last year when the Food and Drug Administration conditionally approved its application to start a U.S. pilot study of its capsule-based screening method to detect colorectal cancer.
This is just an initial step in what could be a lengthy testing process, but it is a step in the right direction. The $14.4 million market capitalization stock is currently trading at a price to tangible book value of 0.9 and has a net cash balance of $17.6 million, which implies a negative enterprise value of -$3.2 million.
Once again, there are plenty of risks here, but this company could be worth further investigation if deep-value stocks interest you.
Disclosure: The author owns no stocks mentioned.
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