Tuesday, November 29, 2011

EnviroStar Trades Higher

Two years ago, EnviroStar (EVI) was brought up on this site as a potential value play. Since then, it has been further discussed a couple of times due its high ROE when adjusted for cash, and its potential revenue rebound. More recently, however, shares of EnviroStar traded more than 50% higher than they did back then, making it the latest stock to leave the Stock Ideas page for the Value In Action page.

Two years ago, EnviroStar was earning about $600K per year with just over $6 million in cash. Today, EnviroStar still earns about $600K per year with just over $7 million in cash. Even though not much has changed for the company, Mr. Market recently believed the company to be worth a whole lot more than it did two years ago. Value investors may wish to take advantage of this situation by selling this stock back to Mr. Market at a relatively fair price.

Of course, EnviroStar may still be undervalued, especially since it fell yesterday while the rest of the market rose. But when the market is offering so many profitable companies at large discounts to book value, it may seem hard to justify hanging onto this one at a significant premium to book. As such, this relatively high price likely affords the value investor a rare chance to sell in this depressed market in order to take advantage of other opportunities.

Disclosure: No position

1 comment:

Anonymous said...

EVI is certainly earning more than $600k a year in after tax earnings, in the last 2 quarters alone they earned $530k and customer deposits are nearing new highs. They h ave cash closer to $7m also but their AR and inventory balance is much higher. Since they only build working capital for projects they have deposits on, it is very likely this working capital flows through the income statement soon. EVI also recently started a dividend.

While you may be done with the name I think it goes much higher.