Blonder Tongue (BDR), a manufacturer of cable tv electronics, is a stock idea with some interesting elements to it. While the company has had a difficult time making money in recent years, it has begun shifting much of its production overseas, which should make it more cost competitive. However, it's not the company's earnings situation which makes this stock appealing, but rather its assets.
By Saj Karsan, Wednesday, March 24, 2010, 6:55 AM | Blonder Tongue | 6 comments »
Blonder Tongue trades on the AMEX for under $7 million, but has current assets of over $14 million against total liabilities of under $6 million. In addition, the company owns several acres of land at its manufacturing site which is likely worth a few million dollars. Furthermore, the company has classified $4 million of its inventory as long-term (and therefore is not included in current assets) because it doesn't expect to sell it this year. While the risk of obsolescence in an industry such as this one is high, this extra inventory is offered to the current investor for free, since the company trades at a discount to its net current assets.
The most troubling thing about this company, however, is how its CEO manages money. Not so much the money within the business, but the money in his personal life. You see, CEO James Luksch declared bankrtuptcy less than a year and a half ago.
Should this kind of information be relevant in assessing a manager's on-the-job ability? It would certainly appear so. If one can't safely manage finances in one's own life, how can one be expected to do so for a public company?
It gets worse, however. Luksch had taken out interest-free loans from Blonder Tongue before declaring bankruptcy. Luksch's daughter and son-in-law are also executive officers of the company, and therefore the CEO's personal business is clearly company business; he has made it so!
In deciding whether to try to take advantage of this opportunity, investors will have to weigh the company's compelling price relative to its net assets against the murky earnings outlook and weak track-record of the chief executive officer.
Disclosure: Author has a long position in shares of BDR