Tuesday, May 8, 2012

GTSI Rockets Upward

Investors who frequent the value blogosphere will undoubtedly have seen GTSI Corp (GTSI) come up frequently as an undervalued stock. To my knowledge, it was first brought up at Frankly Speaking in 2010 (and subsequently appeared on that site a number of times), then discussed right here as a Stock Idea in May of 2011, subsequently showed up in a paid newsletter a week later, and finally was featured in August (in the first of many) over at Burger King Whopper Investments*.

Yesterday, the stock rocketed up almost 50% on a buyout offer, giving all of these guys something to cheer about. GTSI is a classic example of a net-net with a seemingly asymmetrical return profile; as it traded at a rather large discount to its net current assets and new management was showing progress at cutting costs in order to reduce losses to manageable levels, downside risk appeared minimal and upside potential high.

That potential came to fruition yesterday as the company announced its intention to be acquired for approximately its net current asset value, resulting in a one-day return of 47%. What lessons can value investors like you draw from this situation?

1) Read value blogs. There are always a lot of good ideas like this one flowing around the value blogosphere, whether the market is expensive or cheap.

2) Buy net-nets that are not destroying value. If the business model is sound, the return profile will thus be asymmetric, putting the odds in your favour.

3) Be patient. Shareholders who bought in 2010 had to wait a couple of years, but eventually saw significant appreciation. Even shareholders who bought in on Friday had to wait until Monday (*slow clap*).

Time to deploy the capital from this investment into the next Stock Idea!

Disclosure: No position

* These are just the ones I recall. If you're a value blogger and I missed your interest in this stock, feel free to let me know and I can add you to the list.

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