Thursday, October 1, 2009

When Price Meets Value

To the dismay of those who abhor repetition, LCA-Vision (LCAV) has gotten a lot of airtime on this site as a potentially undervalued stock. But finally, that potential has manifested itself into reality, as LCAV has nearly tripled in price from when we first jumped on its scent some 10 months ago.

For those who have grown tired of hearing us rave about this stock, your day has come. At the price it hit last week, LCAV will no longer be brought up as a stock with value potential; instead, it gets moved to the "Value In Action" page, where examples of stocks that go from under appreciated to reasonably appreciated reside!

LCAV's price appreciation did not follow a linear ascent, however. LCAV would fall to just $2 per share in March, a full 33% below the $3 it was when we first discussed it as a potential value play. But despite the price drop, the value had remained steady: the cash balance was preserved and was higher than the company's market value, the competition was shutting its doors, and the company was cutting its costs. As such, despite the drop in price, the company offered downside protection to investors in the form of its assets.

As consumer confidence returned however (and demand for LCAV's service is related to consumer confidence), investor sentiment has shifted. The stock is up 100% in the last 3 months, and is at a level where the upside has been decidedly reduced. As such, it now appears to be a good time to cash out and hunt for the next potential value investments.

Disclosure: None

6 comments:

prince said...

Saj,
Kudos as always. I'm actually in Iraq and check your site every morning! Not many people are as keen on value investing out here(a bunch of momentum guys) so it's refreshing to check into the Village of Graham and Doddsville.

I invested in this company at roughly $4.80 in July 2008, rode it down through the pain of March 6 2009(2.06 per share) then cashed out at 5.76 a share in April for a 20% gain. Looks like I left money on the table

My question here is did you do a DCF analysis of value or a liquidation analysis. Aka what made you pick this as an exit point.

Anonymous said...

nice!! another reason why i love this site! thanks for all your work! :)

akwon said...

Saj, I'm just curious, about how big of an impact do you have on these micro cap stocks? Considering you have your own fund I'd assume you had no less than 500,000 shares of the company. So when your fund purchased and sold this stock, I'm it left a big dent in it compared to the rest of us that buys and sells 500 shares to 10,000 shares.

P.S. Kudos to your insight, glad it paid off during this massive unsteady market.

Saj Karsan said...

Hi Prince,

That's interesting...what do you do in Iraq? As you allude to, determining an exit point is hardly an exact science. I look at its assets and its earnings power to come up with what I think is a conservative valuation for the business. This article offers the best insight I can offer on estimating this company's value: http://www.barelkarsan.com/2009/08/earnings-capacity-example.html

Thanks, Anonymous!

Hi Akwon,

I'm not sure if you've looked at the size of KVF, but I'm pretty sure this site has many readers with far greater market influence than this fund.

prince said...

Hi Saj,
I fly a jet called the EA-6B prowler for the Marines. Prince is my callsign.

So looking at the $90 million in fixed assets and $18 million in operating assets would it be fair to say you think that 130.4 million(market cap at yesterdays $7.01 close) is the upper bound of what you think it's worth i.e a multiplier of 7.2 times operating earnings?
Thanks

Saj Karsan said...

Hi Prince,

Yeah somewhere in that price range :P

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