Thursday, March 4, 2010

A Good Sport

Value investors tend to invest along with other value investors: investors looking for stocks with particular characteristics will tend to find the same stocks attractive. Furthermore, when value investors are significant shareholders in certain stocks, other value investors may find these investment opportunities particularly attractive, in the knowledge that their interests may be aligned with those of other shareholders.

With that in mind, consider Sport-Haley (SPOR), a designer and distributor of fashion golf apparel. Revenues for such high-end items have taken a nosedive as a result of the recession, but Sport-Haley's stock price may have overreacted to the downside.

While the company continues to mount losses, its cash flow situation is not as poor as its earnings would suggest. The company is reducing inventory, which is proving to be a source of cash, and that inventory can be purchased by the investor practically for free. The company trades for just 60 cents per share, but has about $1.50 in inventory! And these aren't the company's only current assets; the company trades at a discount to its net current assets of almost 80%, which is a massive discount by any stretch!

It is, however, important to note that this company does not trade on a regular exchange (e.g. NYSE, NASDAQ), unlike most of the stocks discussed on this site. Instead, it trades "over the counter" and therefore, investors are not afforded the same level of protection as they are for exchange-traded stocks, and the standards for the company's disclosure requirements are not as high. Investors new to this type of trading should ensure they understand the added risks before participating in such issues.

In addition to the discount to current assets, what adds appeal to this stock as a value investment is the involvement of North & Webster, an investment firm that follows the principles of Benjamin Graham. North & Webster has purchased a stake in the company, and has replaced the Chairman of the Board with a value investor. Last time we saw a situation like this was when we considered Goodfellow as a value investment. Goodfellow subsequently saw a price run-up, and as a result it can now be seen on the Value In Action page.

Disclosure: None

5 comments:

Justin Stuparitz said...

They look extremely under valued probably because they haven't turned a profit in the last 5 years. That's a long time even when the economy was booming they weren't able to turn a profit.

Do you think North & Webster can turn this company around?

emiliano_s said...

i think that is good news that the company presented cashflow postive numbers (400k) for the six months ended in december 2009. principally from the liquidation of inventory.

apparently N&W is doing something.

actually from sept to dec the intrinsic value of the company increased.

Matt @ Dividend Monk said...

Interesting.

I like small caps, but I prefer to stay in the range of at least $100 million market cap and on a top exchange.

chroma said...

I was wondering where you got your recent data. When I went to Edgar I couldn't find any financial reports since they de-listed. I had looked at them last fall, but felt there was too much uncertainty, since I did not know what was really going on with the company.

Saj Karsan said...

Hi Chroma,

They report at otcmarkets.com

Hi Justin,

I did ask N&W to comment, but they did not respond before the article was published (and still haven't)

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