Monday, December 6, 2010

Taitron Components: Inventory And Property On Sale!

Taitron Components (TAIT) is a distributor of electronic components that trades on the Nasdaq with a market cap of $6 million. But the company has $17 million of current assets against just $3 million in liabilities.

Taitron has not made money in several years, but it is not losing so much that its current assets are being eroded significantly. Over the last nine months, the company has lost just over $200K. Compared to the $8 million difference between the company's trading price and its net current assets, this is a small sum.

Meanwhile, Taitron is getting closer and closer to profitability. Last quarter, the company lost just $50K, and revenue growth was up 33% year-over-year. As a distributor (and not a manufacturer), Taitron doesn't have to make large capital expenditures with uncertain payoffs that increase the uncertainty of future cash flows. But part of Taitron's strategy is to carry enough inventory such that it can satisfy customer demands on the spot (this is one of the ways in which it can compete with manufacturers which like to keep inventories lean). As such, inventory obsolescence risk is high. In fact, much of Taitron's inventory has been on the shelf for over a year, though many of the components the company carries are pretty standard.

A purchase in Taitron isn't just a play on the current assets, however. The company also owns several properties, the largest of which is a facility in Valencia that is about an hour's drive from downtown L.A. The location was purchased 11 years ago for $3.3 million - but Mr. Market is throwing it in today for free.

The company does have a dual-class share structure, which isn't always in the best interests of minority shareholders. But it should be noted that management does own 46% of the company, so their incentives are to large extent aligned with the remaining shareholders. Furthermore, over the last four years the company has handed out in dividends what equates to more than 15% of the current share price, which suggests that management is willing to give back to shareholders. Dividend payments are not regular, however, so shareholders can't count on any coming any time soon.

If demand for electronic components continues to recover and grow, this company may see profitability relatively soon. In the meantime, investors are offered the opportunity to buy a whole lot of assets at a large discount to their values.

Disclosure: Author has a long position in shares of TAIT


Franck - invest and win said...

Very positive text, but "disclosure : none". Why ?

Floris said...


I completely agree.... I have been looking at this stock for a while but it appreciated rapidly this summer. Now that it has come down again it is a great net net.

I used to have problem buying non-profitable net nets, but I have since adopted Walter Schloss's mantra:

"If the assets are in place, good things will happen"

Stocks I missed because of this blind spot:

Nu Horizon
Tuesday Morning

At least I own MEADE

Saj Karsan said...

Hi Franck,

A mistake on my part. I wrote the article awhile ago, and have since established a position. I have edited the disclosure section accordingly.

Anonymous said...

Hey Barel,

Have you ever checked out CCME? It looks promising and has a reputable auditor.

-Canadian Student

Saj Karsan said...

Hi CS,

Thanks for the idea; I'll post here in the coming days if I have an opinion on it.

Dominic Nadeau said...

Hi Saj,

maybe you would be interested by this post...

Saj Karsan said...

Hi CS,

I've now written about CCME here.

Inventory POS System said...

I appreciate your post, thanks for sharing the post, i would like to hear more about this in future

Anonymous said...

Hello, Saj. How does Taitron look today?