On Monday, the Micro Cap Magic Formula Newsletterâs second pick, Access Plans (APNC, Financial), announced a buyout for ~$3.30 per share. The offer represents more than a 50% premium to price we paid ($2.16) for shares in the brokerage account we use to track to newsletterâs performance.
Obviously, the stock is quite a success for the newsletter. Indeed, itâs the biggest winner in the portfolio so far. So itâs instructive to go back and look at what we got right when we chose APNC. In doing so, we can keep the things we did right in mind and try to continue to identify them in future newsletter picks
First, we knew the company was in play. Each newsletter write up includes a catalyst section, and in APNCâs, we identified an acquisition as the primary catalyst. Hereâs a quote from the newsletter:
â⌠in November, the company announced they were exploring âstrategic alternatives to enhance shareholder value.â These included going private transactions or making an acquisition.
Now, the stock price is up substantially since then. But given how quickly their earnings have grown, the company is still extraordinarily cheap, and a share buyback or going private transaction could drive the stock price significantly higher.â
Second, the stock was ridiculously cheap, and earnings were growing rapidly. Again, another quote from the article:
â..The companyâs enterprise value comes in at $37.1m and they trade for an EV / EBIT (after adjusting for the amortization expense) of 4.4x.â
Thatâs really, really cheap.
With a big (and growing) cash balance, it was almost inevitable that the company would get acquired or do something (like a share buyback) to begin to correct for this multiple.
Finally,insiders owned 60%+ of the company. So it made sense for them to do something to get the stock price up; their interests were clearly aligned with shareholders.
So what did we get wrong?
The buyout price seems very, very low. Itâs at the low end of the fair valuation range we identified in the newsletter, and given earnings have grown since the newsletter, it implies a price of
All in all, though, the buyout serves as a nice validation for the Micro Cap Magic Formula Newsletterâs strategy: buy stocks at low multiples with high returns on invested capital and clear competitive advantages, preferably with identifiable catalysts, and let the market take care of the rest!
This month's magic stock is buying back 16% of their shares within the next three months. Its fair value is at least 90% above today's prices. Download the February issue of the Feb. 2012 Issue of Micro-Cap Magic Formula Newsletter.
Obviously, the stock is quite a success for the newsletter. Indeed, itâs the biggest winner in the portfolio so far. So itâs instructive to go back and look at what we got right when we chose APNC. In doing so, we can keep the things we did right in mind and try to continue to identify them in future newsletter picks
First, we knew the company was in play. Each newsletter write up includes a catalyst section, and in APNCâs, we identified an acquisition as the primary catalyst. Hereâs a quote from the newsletter:
â⌠in November, the company announced they were exploring âstrategic alternatives to enhance shareholder value.â These included going private transactions or making an acquisition.
Now, the stock price is up substantially since then. But given how quickly their earnings have grown, the company is still extraordinarily cheap, and a share buyback or going private transaction could drive the stock price significantly higher.â
Second, the stock was ridiculously cheap, and earnings were growing rapidly. Again, another quote from the article:
â..The companyâs enterprise value comes in at $37.1m and they trade for an EV / EBIT (after adjusting for the amortization expense) of 4.4x.â
Thatâs really, really cheap.
With a big (and growing) cash balance, it was almost inevitable that the company would get acquired or do something (like a share buyback) to begin to correct for this multiple.
Finally,insiders owned 60%+ of the company. So it made sense for them to do something to get the stock price up; their interests were clearly aligned with shareholders.
So what did we get wrong?
The buyout price seems very, very low. Itâs at the low end of the fair valuation range we identified in the newsletter, and given earnings have grown since the newsletter, it implies a price of
All in all, though, the buyout serves as a nice validation for the Micro Cap Magic Formula Newsletterâs strategy: buy stocks at low multiples with high returns on invested capital and clear competitive advantages, preferably with identifiable catalysts, and let the market take care of the rest!
This month's magic stock is buying back 16% of their shares within the next three months. Its fair value is at least 90% above today's prices. Download the February issue of the Feb. 2012 Issue of Micro-Cap Magic Formula Newsletter.
