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
Universal Power Group: Really Cheap Now
By Saj Karsan, Friday, August 12, 2011, 6:26 AM | Universal Power Group | 2 comments »
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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.
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)