Friday, August 12, 2011

Universal Power Group: Really Cheap Now

Universal Power Group (UPG) is a distributor of batteries and other power-related accessories. While it has been cheap for a while, it just got really cheap as a result of the market turmoil and recent results that the market didn't appear to like.

But this remains a profitable company trading at about a 50% discount to its net current assets. No doubt, there are a few concerns about this business, as outlined in this article from a few weeks ago, to which the company responded here. But its price was 50% higher then. A cheap price can make a lot of negative factors less relevant!

We also had not seen how flexible the company's cost structure was, as we knew revenues to a large customer were about to fall, but we did not know how that would affect the income statement. We found out in the most recent quarter, however, as UPG's sales to ADT fell 86% and yet the company remained profitable.

As discussed here, when other investors are selling out of fear, now is the time to deploy that cash to strike. Buy the falling knives on the cheap, and sell them back to Mr. Market at fair value when he's back and in a hungry mood.

Disclosure: Author has a long position in shares of UPG

11 comments:

Parker Bohn said...

I looked at UPG a few years ago.

At the time, there was a possible arbitrage opportunity where ZNCM owned 40% of UPG, but was not valued to reflect this.

I'm not sure what the situation looks like now, but it may be worth a look at ZNCM, as it may be an alternate way to buy into UPG.

Anonymous said...

It appears cheap by book value, if you can be certain that the inventory is worth near 100 percent. its not that cheap on ttm ebitda....i.e. 6x for a no growth/declining biz.
in the distribution side, i'd rather be long lorex technology. 6MM of ebidta ttm and EV of only 20MM. ebitda number will improve to 7 or 8 shortly and cash generation will bring EV down. biz has some growth in it too which may warrant more than a 6x multiple (current 3x or less)

Anonymous said...

Hi Saj,

Just wondering if you still own this stock. I've been following it for a while. Stock is dirt cheap here and a lot cheaper than when you first publish your report on UPG. One of the reasons I think this stock is so cheap is because the management doesn't forecast revenues. Listening to the conference calls, a few shareholders asked about the new acquisition and management cant say how much revenues it will bring in or how accretive it will be. CEO says it will be accretive but then sales keep declining. The stock is dirt cheap but I cant pull the trigger on it. Do you still own it?

regards,

rob

Saj Karsan said...

Hi Rob,

I quite like it at this price!

Anonymous said...

Hi Saj,

I mean I love the value year but don't see a catalyst. I dont really like the CEO to be honest. They should be buying back shares. what do you think the catalyst will be??

rob

Saj Karsan said...

Hi Rob,

I don't know of any potential catalyst here.

Anonymous said...

Hi Saj,

With today's delisting announcement and suspension of SEC reporting how is that good for small shareholder's.

How can we keep the shares and benefit from these actions?

Sell? Keep?

Anonymous said...

Hi Saj,

With the delisting announcement today is their any hope for small shareholders?

Sell? Keep?

Should they not buyout small shareholders.

Iowa said...

As another 'small' shareholder, I'd also be interested in your opinions. It appears there is no future communications from the company, which is quite a blow to all shareholders who are not working with the company/board that do not know the companies' future intents. Thoughts?

Saj Karsan said...

Hi Iowa and Anons,

It's a bit of a double-edged sword, trading costs for transparency here. I own some OTC stocks, so I'm comfortable with it, but Mr. Market sure made his opinion clear.

I put in a request for more information about how much communication they will offer investors in the future, and I haven't heard back yet.

Iowa said...

As did I Saj, both with the Corporate Secretary (no response). I did get a response from Lambert, Edwards & Associates, though as you may have suspected, info was as far as the communication sent out yesterday.

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