Analyzing Bargain Stocks

China-based companies listed in the US via reverse mergers don’t get much love from investors – particularly when they don’t pay any dividends. Ever-Glory is one such company engaged in the wholesaling and retailing of branded fashionwear. In its wholesale business, it manufactures on contract for various prominent global clothing brands. It also retails clothing under its own brands in 1,100 stores across China. The sales mix for wholesale and retail is approximately 50/50. 51% of its sales are in China, 19% in the UK, 18% in the US, 10% in Japan, and 2% in Germany. The company generated $383m of sales in 2019 and generated EBITDA (a proxy for cash earnings) of $12m (down from $449m and $23m in 2018). It borrows regularly to finance purchase of capital equipment and ended up with bank borrowings of $30m offset by cash of $49m. Net current asset value (a proxy for liquidation value) as at December 31 st  2019 is $28m. Considering these facts, it’s extraordinary that the e

Practically all stocks featured on this website face a significant headwind, which can knock some of them out. Quite a few of them face multiple such headwinds that have beaten their stocks to a pulp. Mammoth Energy is primarily involved in the provision of oilfield services and electrical infrastructure and is listed on the NASDAQ. Revenues have tumbled continuously every quarter from $262m in March 2019 to $67m in December 2019 and cash flows have turned negative. The company was hit severely by the decline in demand for oil services and the run-off of electrical infrastructure work it executed for the Puerto Rico Electrical Power Authority (PREPA) following Hurricane Maria in 2017, which contributed 61% of revenues in 2018. In addition to the decline in oil demand, the company faces multiple lawsuits in the manner it obtained the PREPA contract. The allegations are that the management of its ‘Cobra’ subsidiary obtained contracts from the US Federal Emergency Manage

It’s generally unprofitable to join a multi-level marketing company - far better to own one. Natural Health Trends Corp is a US-listed direct seller of personal care products. The vast majority of its sales (81%) are generated in Hong Kong, who sell to members in China via e-commerce through various importers. The company applied for a direct selling license in China in January 2019 but was advised by a “Chinese governmental authority” later in the year to withdraw its application, which the company did so. The company suffered a double whammy in 2019 as the Chinese authorities began an intensive review of general direct selling practices in China – and the company received a lot of negative social media coverage. The pro-democracy protests in Hong Kong also curtailed activities that added to its woes. As a result, 2019 saw a decline in its sales from $192m to $78m and its net profit of $31m turned into losses of $6m. And now, Covid-19 has further postponed meeting events

The ‘China Hustle’ was a 2017 documentary that showcased the frauds perpetrated by Chinese companies taking over publicly listed US ‘shell’ companies and raising money from the public. Their financials were exposed as fraudulent when compared with videos of factory activity and filings with Chinese regulators (SAIC). Shineco wasn’t named specifically in the documentary and is listed on the NASDAQ. It processes Chinese herbal products. It listed in 2016 and is currently selling at under $12m or $0.43 per share. It appears to be extremely cheap based on the financials – selling at just 24% of net current asset value (a proxy for liquidation value) and less than 2x average earnings. The current assets are primarily comprised of cash of $42m, supposedly entirely in Chinese banks. Despite having $42m in liquid cash deposits (and supposedly generating net cash flows of $6.1m in the last six months), the company has embarked on three equity raises since September 2018 aggregatin

Active investment managers have taken severe beatings over the last few years as money piles into passive index funds. Manning & Napier  (MN), Inc. is a US-based registered investment advisor. It earns fees serving wealthy individuals and institutions via separately managed accounts, mutual funds, and collective investment trusts. The company has suffered declines in assets under management (AUM) from $25.1 billion two years ago to under $19.5 billion as at December 31 st , 2019. Almost all its funds have underperformed their benchmarks (though not by a lot) over five and ten-year periods. Revenues have declined from $314m in 2015 to $138m in 2019. In such a backdrop of continually declining revenues, the bargain hunter would hang his/her hat on liquidation value. Examination of the balance sheet reveals net liquid assets i.e. cash, short-term investments, and short-term receivables net of all liabilities of $81m. The company's common stock is selling for under $49m

How do you value the stub of a business that sold off its consistent earnings generator? Galliford Try Holdings plc (formerly known as Galliford Try plc) is a UK-focused construction company that sold a large chunk of its business (Linden Homes and Partnerships & Regeneration divisions), which accounted for about half of its revenues before disposal and over 100% of its profits. What remains is a business with ‘Buildings’, ‘Infrastructure’, and ‘PPP Investments’ segments that generated revenues of GBP 1.311 billion and pre-tax losses of GBP 28.6 million in the last twelve months (before “exceptional” items comprising several one-off items). The company has an order book of GBP 3.2 billion and management are targeting a 2% profit margin. The net debt as at December 31 st 2019 was GBP 225m. After the disposal on January 3 rd  2020 and receipt of consideration, however, management assert that the group operates with a net cash position of GBP 225m. The adjusted balance

Oil is currently trading at multi-decade lows. Seplat Petroleum owns stakes in eight oil blocks in the Niger delta region. It owns 40-45% of each of them, operates four, and is a non-operating partner in the remaining four blocks. Seplat is listed on the London stock exchange and in Nigeria. It owns proved and probable oil reserves of 509 million barrels, which will last it till 2042 at current production levels of 47 to 57,000 barrels per day. Its production costs are a mere $6.20 per barrel giving it enormous staying power even in the current oil slump (with WTI crude at $20 today). This doesn’t factor in the hedging of all its sales to the third quarter of 2020 at $45 per barrel. The company generated pre-tax profits over GBP 260m in the last two years though it wasn’t immune from losses during previous oil slumps (and exacerbated by militancy in the region). Net cash flows, even after acquisitions have enabled fairly consistent dividends at just under GBP 50m a year.