Tuesday, July 16, 2013

IGOI'ng To Where The Puck Is Going To Be

Just three months ago, the stenchy shares of iGo were brought up on this site as a potential value investment. Today, those shares smell almost 40% better, even though the company's operations have only gotten worse.

Shareholders may have gotten a bit lucky in this one, as a buyer for 44% of iGO's shares has emerged. But if you put the odds in your favour, which is what you're doing when you buy companies for less than the cash on their balance sheets, good luck is likely to pay you more than bad luck is likely to cost you, over the long-term. A timely study by Alon Bochman on the subject serves as proof.

Sometimes it isn't easy to buy these negative enterprise value stocks, however. This is because they are usually bleeding cash. But if you buy at enough of a discount, perhaps you can wait around for the bleeding to stop. Or perhaps, as in this case, you get lucky and someone buys the cash off of you.

Either way, when the expectations are extremely low, that's when you want to be a buyer.

Disclosure: No position


Philbert said...

Any thoughts on SXCL - the company that bought them out?

Saj Karsan said...

Not really. What do you like about it?

Philbert said...

Well it is trading at 0.9x book value. It earned 0.26 EPS last quarter on the back of its Steel Energy division. As of March 31st, 2013 it had $261.8 million of cash and marketable securities, or $20.41 per share. The shares are currently trading around $29 -$30 each. They also hold NOLs of approx. 154 million.

Saj Karsan said...

The cash is nice, as long as it's not blown on badly priced acquisitions. I have a hard time valuing companies that are likely to have volatile demand environments thanks to volatile oil prices, however, so I wouldn't know how to determine a fair value for the Energy company.

Charles Hang said...

If you're interested in Steel Excel, you should consider Steel Partners, the parent company that controls it.

OTC Adventures has a nice writeup here: http://otcadventures.com/?p=90

Anonymous said...

Any thoughts on tendering the shares at $3.95 or just selling now? Any reason not to?

Saj Karsan said...

Hi Anon,

I don't think I add any value in the arbitrage game. I tend to sell before consummation.