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Forbes Best Small Companies (Part 7): Digital River, Air T Inc., Twin Disc

January 13, 2010 | About:
This is a continuation of the series of valuing each of the 200 Forbes Best Small Companies. The official list can be found here.

In this list, I’ll list up the valuation results of companies 101-135.

Digital River (DRV)

A software company for e-commerce solutions.

Fell by about 35-40% when the company was informed by Symantec that the contract will not be renewed. Will have an effect on future earnings power but to what extent is something you should consider in your further research.

DRV has strong fundamentals. It boasts a FCF growth in 5 years of 24%, CROIC growth of 15% and FCF/sales of 22.1%. Software companies do not store inventory so obviously their top line numbers will travel down to the bottom line.

Earnings yield is at 15.3% while FCF yield is 3.9%.

  • Current Price: $26.55
  • DCF Valuation: $32.44
  • Graham’s Intrinsic Value: $33.43
  • EPV: $24.25

Air T Inc (AIRT)

Cargo transport and logistics company.

From an initial glance, AIRT looks to be an interesting opportunity. AIRT pays a 3.37% dividend has some really good fundamental figures. FCF and CROIC is 14% and 15% respectively. Earnings yield of 310%! and FCF yield of 15%. However, the P/FCF is a tad high at 18. Another interesting point is that a company such as AIRT would have a capital structure with more debt, but debt has been decreasing. It isn’t an issue anyways, especially when the FCF to debt ratio is 60%.

  • Current Price: $9.80
  • DCF Valuation: $22.48
  • Graham’s Intrinsic Value: $23.53
  • EPV: $20.47
I’m liking AIRT from what I see.

Twin Disc (TWIN)

Sells marine and heavy duty off-highway power transmission equipment.

Second one to study up on from this list. Decent numbers and margins considering the industry it is. Has been FCF positive for the past 10 years or 9/10 years if you use owner earnings.

  • Current Price: $10.48
  • DCF Valuation: $18.62
  • Graham’s Intrinsic Value: $24.69
  • EPV: $16.70


Jae Jun

http://www.oldschoolvalue.com/

About the author:

Jae Jun
Jae Jun is the author of Old School Value, a value investing blog dedicated to the Old School methodologies and teachings of the investment greats such as Graham, Buffett and Fisher. The blog deals with finding intrinsic value, fundamental stock analysis and special situations including spinoffs and merger arbitrage.

Visit Jae Jun's Website


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