Thursday, May 16, 2013

IFON You Up With A Deal

InfoSonics (IFON) was already a deep net-net when it reported results earlier this week. But after reporting an EPS loss of 5 cents, the shares were pulverized, causing the company to lose almost one-third of its market cap, or 16 cents per share. Blood in the streets.

You might recognize this name from last year. It was featured on this site's Stock Ideas page before a run-up in its price got it promoted to the Value In Action page. The stock is now down about 75% from its high last year, providing deep value investors another potential opportunity.

InfoSonics makes low-cost handsets for Android phones. Don't expect any miracles from this thin margin business. But the good news is, you don't need any. At its current market cap of $6 million, investors are offered $4.5 million in cash, $10 million in receivables and $3 million in inventory, against total liabilities of just $5 million. This is a discount to net current assets of over 60% for a company that showed a quarterly profit as recently as 12 months ago.

Unlike a lot of other companies the market is currently shunning (in what appears to be a rather short list at this time!), management of InfoSonics is not incentivized to steal from shareholders. The company's CEO owns almost one third of the company's shares, so if the ship goes down, he goes down with it.

There is certainly a risk that the company will continue to lose money until it blows through its rather large margin of safety here. But with a large cash balance relative to share price, and a manager whose incentives are aligned with those of shareholders, the odds are probably in the investor's favour on this one. While this particular investment may not work out, I would be very surprised if a basket of these did not.

Disclosure: Author has a long position in shares of IFON


Anonymous said...


Do you not find their failure to meet Nasdaq listing requirements a big short term negative?

They have to respond by June and will probably get a 180 day extension but what options do you they have should they not be able to meet compliance? Reverse split? Transfer to another board?

Saj Karsan said...

Hi Anon,

Yeah that could be a negative to the price, but I try not to worry about such things. I focus mostly on what the business is worth, relative to current price. If the price drops in the short-term without a loss in business value, I may buy more.

Yes, I believe the company can use either option you mentioned.