Friday, July 26, 2024

VOXX Unpopular

Audiovoxx (VOXX) is a cyclical manufacturer of automotive and consumer electronics. The auto industry is going through a downturn at the moment, so Audiovoxx has been losing money and sitting on high inventory levels. But the stock has fallen almost 90% from its 2021 high, which may be on the excessive side, resulting in a potential opportunity.

The company trades for $55 million despite a tangible book value of $160 million! Much of this is made up of current assets like inventories and receivables.

Though Audiovoxx had negative EBIT of $7 million last quarter, management has vowed to cut expenses such that it will be profitable by the end of the year. They are being pretty transparent about how they plan to do so, which gives me even more confidence that the stock trades too low.

First, they have a sale contract on their facility in Orlando, which at closing will reduce debt by $19 million. Manufacturing will now be done in Mexico for lower costs.

Second, they are in "advanced discussions" to sell two "non-core" brands, which in aggregate could add up to tens of millions in proceeds. The term "non-core" is an interesting one. I always wonder how companies come to decide something is "non-core". It must have been considered "core" or "core-potential" at some point, or they would not have entered the business. So my best guess is that "non-core" means it's losing money right now, in which case a sale likely helps improve the bottom-line.

We don't need these guys to be rocket scientists for us to make a lot of money here. If they can cut costs by selling unprofitable lines, reducing overhead, and consolidating their footprint, a return to something near book value seems likely. If they can make a hit product by some accident (like they occasionally have in the past), returns from this level would be amazing.

There is a dual-class share structure here though, so don't expect someone to come along and bail us out if Plan A fails. We are stuck with this board, for better or worse.

Good luck!

Disclosure: Author is LONG shares of VOXX

6 comments:

Dean said...

interesting idea.
i think it goes like this
full-core -> core -> semi-core -> non-core -> the-assets-formerly-known-as-core

Capital Hindsight said...

Thanks for the interesting pick, but I have some reservations. I really like the P/S ratio of 13% and the P/TB ratio of 24%. However, the long-term debt of $64 million seems significant, especially given the negative CFO margin. I would feel more confident if there was some insider buying. If that were the case, I might consider taking an initial position.

Capital Hindsight said...

In my last comment I made a mistake P/TB = 48%. Sorry about that.

Amit said...

what are your thoughts on the fact that this company has had negative free cash flows, pretty consistently, for the last decade?

Saj Karsan said...

Hi Amit, yes I would not call this company a great earner by any stretch. I just think the discount to net assets is far too large here. Hopefully some free cash flow comes about from monetizing some of those assets.

Capital Hindsight said...

Great call on VOXX! Congratulations on the excellent pick!