1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Rupert Hargreaves
Rupert Hargreaves
Articles (947)  | Author's Website |

4 Cheap Value Stocks Trading Below Book Value With Net Cash

Some deep-value stock ideas

September 16, 2019 | About:

Finding cheap stocks isn't easy, but there are a handful on the market right now that might make an attractive addition to any value investor's portfolio.

Stock buybacks

One of these is Michael Burry favorite GameStop Corp. (NYSE:GME). At the time of writing, this $390 million market capitalization company is trading with a price-book ratio of 0.5 and a forward price-earnings multiple of 3.3.

At first glance, the stock looks unbelievably cheap, but it is struggling. Its latest earnings release was much worse than analysts expected with a 14.3% decline in revenue for the second quarter.

29330612.png

On top of this, losses widened considerably from $25 million to $415 million. For the full year, management is now expecting revenue to decline between 5% and 10% as it shutters 200 stores and reduces capital spending.

It doesn't look as if this stock will cure its problems itself. Therefore, it is a good thing Burry decided to try and push management into action. In mid-August, he wrote to GameStop's board, demanding the company repurchase 80% of its outstanding shares with the $480 million of excess capital on the balance sheet.

"Depending on the timing and quality of execution, such a repurchase would increase earnings per share dramatically - far more than any other possible action on a per share basis," Burry said.

While management has not given in to demands just yet, there could potentially be a substantial upside on offer for shareholders here if the company does decide to pursue this course of action.

Outperforming

Another struggling retailer that is currently dealing at a bargain-basement price despite having a relatively robust balance sheet is athletic specialty store Hibbett Sports Inc. (NASDAQ:HIBB).

Hibbett is just a bit smaller than GameStop and seems to be coping well in the current retail environment. Wall Street analysts believe the company's revenue and earnings per share will grow in 2020 They've penciled in earnings per share growth of 6% followed by growth of 5% for fiscal 2021. Revenue is expected to expand by around 15% during this period.

1420716219.png

So at a time when many other traditional retailers seem to be struggling, Hibbett appears to be coping well. Despite this, the stock is trading at a discount valuation of just 8.2 times forward earnings and an enterprise value-Ebitda ratio of 3.7, around half of the specialty retail sector's average.

The stock is also trading 4% below book value per share, which seems unwarranted because at the end of its last reported quarter, the group had a net cash balance of $78 million backstopping operations.

Oil services

Moving away from retail, oil and gas industry supplier Flotek Industries Inc. (NYSE:FTK) could be worth a closer look.

This business manufactures and supplies chemicals for the oil and gas market as well as cleaning products for the cosmetics, food and beverages industries.

1420716219.png

Sales have been falling for the past five years and are expected to stabilize in 2019 and 2020. Only time will tell if analysts are correct on this forecast, but there appears to be a considerable margin of safety between the value of the business and the current market valuation.

The shares are dealing at a book value of just 0.6 and a price-sales ratio of less than 1. With just under $100 million in cash on the balance sheet, this $140 million market cap company appears quite cheap to me.

Furniture maker

The final stock I'm going to cover is Flexsteel Industries Inc. (NASDAQ:FLXS), which manufactures and supplies wood furniture products. The stock is currently dealing at a price to tangible book ratio of 0.6, and there's $22 million in cash on the balance sheet, making up approximately 18% of the current market capitalization.

Disclosure: The author owns no stocks mentioned.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


Rating: 0.0/5 (0 votes)

Comments

Please leave your comment:



Performances of the stocks mentioned by Rupert Hargreaves


User Generated Screeners


pjmason14Momentum
pascal.van.garsseHigh FCF-M2
kosalmmuse6
kosalmmuseBest one1
DBrizanall 2019Feb26
kosalmmuseBest one
DBrizanall 2019Feb25
kosalmmuseNice
kosalmmusehan
MsDale*52-Week Low
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)