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Net-net Analysis - Boss Holdings

July 12, 2012 | About:

Boss Holdings (BSHI) is another of the stocks I mentioned a long time ago and fell out of touch (here and here). Given I haven’t mentioned them in a year, and their recent yearly earnings announcement contained some interesting tidbits, I thought it was time to go revisit them.

First, a quick recap of how Boss got here- they went dark about two years ago though a reverse split / forward split process. What’s attractive about BSHI is they trade for just a fraction of their NCAV despite consistent profitability (plus, management and directors own more than 2/3 of shares).

So let’s dive straight into the most recent annual earnings announcement. There were several very interesting tidbits buried in it.

First, the company announced a $1.5m share buyback. With their current share price of ~$8 (as I write this on 4/30/2012), that represents almost 10% of shares outstanding and about 1/3 of the shares that management doesn’t already own.

Second, there was this

the Company reevaluated its estimates and, based upon its current and projected profitability determined that it was more likely than not that it would be able to utilize an additional $1,094,000 of its remaining NOL carryforwards.
Now, forecasts always need to be taken with a grain of salt, and this might mean nothing. But here you have a company trading for a fraction of book announcing management is forecasting increasing profitability. That’s very interesting.

On to valuation. Now, it is true that the company’s operating income declined a bit year over year…. but back out a one-time customs/compliance cost and operating income was basically flat year over year at just under $3m. If we use $3m as the normalized operating income number, then the company is trading for under 6x EV / EBIT based on its current share price of $8.00 ($16m market cap less $2m excess cash). Remember, the company has significant NOLS and almost no debt, so EBIT = net income, meaning the company is trading for under 6x normalized earnings!

In terms of EV / Sales, BSHI trades for 0.22x sales. Granted, using sales multiples in absolute is ridiculous, but if you’re thinking about an eventual sale of the company, it’s pretty rare for a profitable company to even consider selling themselves for that low of a sale multiple. Not that the company’s in play, just something to keep in mind.

Now that we’re done with the income statement valuation, let’s check out balance sheet valuations. I’ve got the company’s NCAV coming in at $15 per share, tangible book value at $17.1 per share, and book value at $18.70. Again, all of those are well in excess of today’s share price of ~$8.00. If the company is successful at buying shares back at these levels, that would significantly increase NCAV / Book value per share, which could drive huge increases in intrinsic value.

Disclosure- not long BSHI at time of writing, but considering it.


Rating: 2.7/5 (7 votes)

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