Monday, November 16, 2015

Shake Those STTs

The price volatility of STT Enviro continues. Over the last few months, I've written about this stock both when buying and when selling. Once again the price has dropped.

STT reported a quarter that was not so good, thanks to a cost overrun on a large project that dropped income for the quarter to almost nil. Furthermore, the company's backlog fell. As a result, the current price is now 40% lower than when I last wrote about the company.

Despite the recent trouble, the company has still earned almost $1 million in net income over the first nine months of this year, with a net cash position of $6.5 million, against a market cap of $11 million. Furthermore, the company's CEO talks about a few large projects that the company has an opportunity to win in the next two quarters, whereas it was not in the running for these types of projects in the past.

There is a risk for this company in addition to the normal operating risks for a company like this. A few months back, the company issued shares for no apparent reason (note the net cash position). While this was probably done to win a proxy fight, which the company did win, there's no guarantee they won't pull more such shenanigans.

There is also some potential upside in the form of a dividend. The company recently had a special meeting just for the purpose of clearing a procedural hurdle that prevented the company from paying dividends.

When a well-capitalized company like this trades at a low multiple of earnings, I think the odds are favourable! Disclosure: Author has a long position in shares of STT.V

1 comment:

Eric said...

A very nice stock. What about a position?

I'm not glad to have more than 1% of my portfolio with this kind of stock: very small company and the business is very atypic...

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