Graham NCAV Review Series: I.D. Systems Inc

I’m beginning a series of brief write-ups covering one of our favorite topics; potential Graham bargains. It’s remarkable the way the markets work. I’m always fascinated how the market can value a company below the actual liquid cash and investments on the balance sheet. Granted this is often due to some serious flaws in the business model or the company may be in the process of selling off divisions. However, ultimately the market cannot ignore the value of cash. This is truly buying a dollars worth of assets for something less than a dollar. As always, we must dig deeper than the first glance at the capital structure.


My objective is to provide an overview to determine whether the potential opportunity is worth further scrutiny. Again, these securities tend to have many warts attached and are may suffer from illiquid trading volume. Patience is required when choosing this type of opportunity – which means these opportunities are not for everyone. With this in mind, I took a look at ID Systems.


I.D. Systems Inc (IDSY, Financial)


Financials:










The company has listed cash and cash equivalents of $54.4 million and long term assets of $9.9m against total liabilities of approximately $14m. I reclassified the long-term assets as current only for the point of this valuation exercise. The entire market capitalization is $36.9m as of the writing of this article. At first glance it appears far more cash than the entire market value. However, a significant portion of the cash is locked in auction rate securities (ARS). The company values this exposure at $20.5m. A company this small with an exposure to ARS that large is highly questionable to be sure. If we take the conservative route and back out that number, we arrive at $30m. Now net asset value comes in below actual market value, but there are assets remaining with potential value.


This company develops and sells wireless solutions for managing and securing enterprise assets. Sounds fairly high tech to the point where existing inventory may indeed have little value due to obsolescence. Therefore, I’m going to zero out this item as well. This may seem overly conservative, but if you notice the way sales are dropping off the cliff – I’d prefer this view. I would value both the accounts receivables and fixed assets (I realize PPE doesn’t qualify as current assets) at 50% which equals $1.7m.


This adjusted valuation leaves us with net current asset value below current market value. Granted this was a highly conservative valuation. But given the number of distressing attributes of IDSY, the risk outweighs the reward. Search for a bargain elsewhere.





Disclosure: none