Monday, October 10, 2011

Universal Volatility

A couple of interesting events have taken place at Universal Security Instruments since they were last discussed on this site as a potential "buy" opportunity.

In addition to a rather dead housing market, one of the problems plaguing this company was certification delays for its new products. There was finally some good news on this front at the end of August, as the company released a product that will be carried by a major Canadian retailer. (Universal Security is a small company such that even Canadian sales can be significant ;)

This news had a rather dramatic effect on the stock price, causing it to rise by more than 20% in a single day. However, when the September volatility rolled through the stock market, it took this stock down with it. Universal Security's stock is now lower than it was even before the product/retailer announcement.

In response, Universal Security issued a release that it is now authorized to buy back 100,000 shares. This is by no means a large repurchase, as it represents less than 5% of the company's shares. However, last time the company did this was in late 2008, and it proceeded to buy back its shares opportunistically and in very short order. The stock proceeded to double shortly thereafter, when the market bounced off its recessionary lows.

While the magnitude of this company's buybacks are nothing to write about (oops, just did!), what is impressive is that the company buys back when its shares are low. (While this sounds relatively straightforward, unfortunately the reality for most companies is far different.) Therefore, the company's recent buyback announcement sends a signal that insiders believe the shares to be cheap.

Of course, just because somebody else is buying, or just because a stock that was up is now down does not mean the stock was worth what it was priced at when it was up. Do your own homework to evaluate what you think Universal Security is actually worth. I'm only giving you the idea, not the impetus to buy.

Disclosure: Author has a long position in shares of UUU

1 comment:

Iowa said...

In addition to your thoughts Saj, I'm teetering on the possibility that Universal has the lowest mfg cost for most of the products they offer- at least from the observations I've seen on their products at retail.

Disclosure- This Random Iowa dude has a long position in UUU

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