There are some investors who purchase stocks whose share prices are trading below their liquidation value. This investment strategy is based on the assumption that it will not take long before Mr. Market reassesses the share prices up to a value near or above the liquidation value, generating significant capital gains. Furthermore, shareholders will, in theory, still be able to earn a profit from the liquidation should the business fail.
The liquidation value of these so-called net-net working capital stocks is computed as "cash and short-term investments plus 75% of accounts receivable plus 50% of inventory, minus total liabilities."
Below are three securities whose share prices are trading below their net-net working capital.
The first stock short-term investors may be interested in is Shineco Inc (TYHT, Financial), a Beijing, China-based producer and distributor of health and well-being focused Chinese herbs and other plants.
The stock was trading at around $2.70 per share at close on Wednesday, standing 70.4% below the net-net working capital of $9.13 for the quarter that ended in June 2020.
GuruFocus has assigned a score of 7 out of 10 to the company's financial strength rating and of 6 out of 10 to its profitability rating.
Following a 44.4% fall over the past year, the stock has a market capitalization of $8.21 million and a 52-week range of $2.10 to $9.63.
Income Opportunity Realty Investors Inc
The second stock short-term investors may be interested in is Income Opportunity Realty Investors Inc (IOR, Financial), a Dallas, Texas-based real estate investment company holding equity real estate assets (including undeveloped properties) in Texas.
The stock was trading around $11.15 per share at close on Wednesday, which is nearly 30% below the net-net working capital of $15.90 for the quarter that ended in June 2020.
The company holds a GuruFocus financial strength rating of 7 out of 10 and a profitability rating of 4 out of 10.
As a result of an 11.8% decline over the past year, the stock has a market capitalization of $46.47 million and a 52-week range of $8.32 to $17.
The company's top fund holder is UBS Group AG with 0.03% of shares outstanding, followed by Advisor Group Holdings, Inc. with 0.01%.
The third stock short-term investors may be interested in is NextCure Inc (NXTC, Financial), a Beltsville, Maryland-based clinical-stage biopharmaceutical developer of novel treatments for cancer and other immune-related diseases.
The stock was trading at around $10.31 per share at close on Wednesday, which is about 5% below the net-net working capital of $10.82 for the quarter ended in June 2020.
GuruFocus assigned a score of 5 out of 10 to the company's financial strength.
After an 84.6% decrease that occurred in the share price over the past year, the market capitalization is $284.07 million and the 52-week range is $7.91 to $109.
As of October, the stock has one strong buy recommendation rating, three buy recommendation ratings and five hold recommendation ratings for an average target price of $23.67 per share.
ORBIMED ADVISORS LLC is the leader amid the company's top fund holders with 9.84% of shares outstanding, followed by Sofinnova Ventures Inc with 9.70% and MORGAN STANLEY with 6.82%.
Disclosure: I have no positions in any securities mentioned.
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