Audiovox (VOXX) a Net Net – Buy
Posted on | February 8, 2010 | 9 Comments
Today I purchased 300 shares of Audiovox (VOXX) at $6.60/share with a $4.95 commission for a total investment of $1984.95.
What is Audiovox? According to their latest 10Q it, “is a recognized leader in the marketing of automotive entertainment, vehicle security and remote start systems, consumer electronics products and consumer electronics accessories. The company is number one in mobile video and places in the top ten of almost every category that it sells.” It was established in 1965 and went public in 1987. You have probably heard of some of the brand names they own including, RCA, Jensen, Acoustic Research, Energizer, Advent, Code Alarm, TERK, Prestige and SURFACE brands.
Why buy VOXX?
1) NCAV. As of their most recent 10Q, Audiovox is a classic Net Net value Investing kind of company. Let’s do the math, NCAV = Current Assets $352 million – Total Liabilities $126.9 million = $225.1 million. Their market cap is just $152 million. This means they have a little over $9.80 in Net Current Asset Value. If you discount that by the Graham Margin of Error of 1/3 you arrive at about $6.58 or my purchase price. If you discount Inventory and Account Receivables you get a lower figure, approximating liquidation value of $5.35/share. Let’s call that the downside risk.
2) Profitably in a difficult time. as their CEO said, “Through the first nine months of the year, we have been profitable despite lower sales volumes, which were anticipated and planned for given the current economic climate and the factors which impacted last year’s results. We have taken aggressive steps to lower our overhead and improve margins, while managing our buying programs to position Audiovox for continued profitability in future periods,” stated Patrick Lavelle, president and chief executive officer of Audiovox Corporation. “While our sales may be lower, our margins are up, our overhead is down and in line with expected sales and we are looking forward to our fourth quarter and fiscal 2011 prospects.“
3) Respected Investment “gurus” own VOXX. According to Gurufocus as of 9/30/09 several well known managers have a stake in Audiovoxx. Seth Klarmann owns 8.72%, Irving Kahn owns 9.71%. This kind of ownership is not enough for me to invest on its own, but coupled with a Net Net position, it is certainly makes the company more interesting. More recently, even more big investors are piling on Donald Smith long/short Equities fund disclosed 2million share ownership the beginning of January in a 13G, In another this month Mackenzie financial corp disclosed 5.59% Ownership. Today Dimensional Fund Advsiors disclosed a 8.48% stake. What does all this activity mean. Nothing today. But one of the ways that small caps stock prices rise is when analyst begin to cover a stock. When they see several large stakes by well known hedge funds or money managers, they are more likely to take notice.
Risks
1) the economy could head south again. This is a risk for all companies that sell discretionary products, but worth noting. If we slip into a double dip recession, count on losses and a drop in the stock price.
2) Voxx seems to be making acqusitions. Third Quarter of last year they bought Schwaiger GmbH, a German market leader in the consumer electronics, SAT and receiver technologies. I am leery of a growth through acquisitions strategy. If this trend continues. Be cautious. It is usually a good way to destroy shareholder value.
3) VOXX has been a perennial Net Net company as noted by Greenbackd in post last March. That does not mean that the stock price won’t appreciate, but it is worth noting.
4) Accounts Receivable has increased. Jae Jun, from Old School Value has pointed out in the comments that the quality of assets is important. He is correct of course, and I should have included the increase in Accounts receivable in 2009 as a red flag.
Perhaps you have some thoughts on this stock. If so, please share them. Post a comment or email me chroma at chromainvesting dot com.
Disclaimer: When I say I bought shares of a company, it is not hypothetical. I actually shelled out cash for the stock. Whether you should buy this stock is entirely up to you. You shouldn’t trust anyone without doing your own research. Yeah, even if that person is me. I am not obliged to notify you in any fashion if I change my mind about this stock. Although since this is a personal blog, the only that would prevent me is probably my paying job.
Comments
9 Responses to “Audiovox (VOXX) a Net Net – Buy”
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February 10th, 2010 @ 6:40 pm
Hi There,
i punched in VOXX in my Net Net spreadsheet by Jae Jun which uses Net Net Working Capital which is
Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) – Total Liabilities
this works out to $4.65/share. That should put in a real floor on this stock. There are a couple of companies that actually trade below Net Net Working capital, maybe you could look at them further.
OBAS – NNWC is $1.62
ENWV – NNWC is $7.09
NCTY – NNWC is $8.52
LTON – NNWC is $2.54
QXM – NNWC is $5.71
GRO – NNWC is $2.54
MYRX – NNWC is $6.20
Feel free to check these out, looking forward to your thoughts on a couple of them.
http://www.oldschoolvalue.com/investment-tools/new-net-net-graham-spreadsheet/?source=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+OldSchoolValue+(Old+School+Value)&utm_content=Google+Reader
February 10th, 2010 @ 9:18 pm
Interesting analysis. Definitely didn’t know Klarman owned such a big stake.
The quality of assets is also an important aspect of investing in net nets.
February 10th, 2010 @ 10:14 pm
Graham,
Thanks for stopping by. I am a big fan of Jae’s site, and you will see references to it throughout my blog. I think his Net Net working capital is a good conservative basis to use for the low end of the Net Net range. I often use it as my buy price. Sometimes, I feel that it is o.k. to use Graham’s original formula which was Net Current Asset Value discounted by his margin of safety, which is what I did for VOXX. You are bringing up a very important point, and one I will address in a future post: How is the best way to use Graham’s NCAV idea, and if it should be updated, how is the best way to update it. Jae Jun has his version. Klarman and Whitman have theirs. Over time I will develop my own as well. Currently, I use a range.
Thanks for the suggestion of other stocks to review. Almost all I own, have looked at or am reviewing, but MYRX is new to me and I will be sure to check it out. Thank you!
ENWV- I have posted about previously, and why I did not purchase shares. http://chromainvesting.com/2009/12/31/endwave-enwv-a-ncav-stock/
QXM- I own shares of XING which is currently in the process of divesting itself of QXM. As a shareholder of XING I am entitled to approx. .4 share of QXM for every share of XING I own. So, I am already playing the QXM position, but one step removed. I do not plan on selling my QXM shares when I receive them, unless further analysis suggests that I should. http://chromainvesting.com/2009/12/01/qiao-xing-universal-telephone-inc-xing-net-net-stock-buy/
LTON- you will note that I have just posted that I bought shares of LTON yesterday. Just too slow to get the posting up before you commented. http://chromainvesting.com/2010/02/10/linktone-lton-ncav-stock-buy/
February 10th, 2010 @ 10:25 pm
Jae,
Thanks for stopping by. I made a healthy return on another Net Net stock that Klarman owned called FACT. Although he still owns the stock and I sold it. You are correct that quality of assets is vital when investing in Net Nets. I think it was Klarman who wrote about orderly liquidation vs. fire sale liquidation in his book Margin of Safety. I have assumed that inventory which has recently declined was not a problem. Although I am a little concerned about the increase in Accounts receivable and will update the post to reflect that as a risk, I am comfortable with Graham’s margin of safety of 33% on the NCAV value, which I have used to determine my purchase price.
February 12th, 2010 @ 12:35 pm
Graham,
I checked out Myriad Pharma (MYRX). They looked interested at first. But in researching, in Dec. they announced a merger (acquisition) of Javelin (JAV) which will be very dilutive to existing shareholders. JAV is not a Net Net Stock, but it has drug that has passed Phase III trials. I probably would have been interested in MYRX before the merger. Now, for me it is speculative, with no margin of safety. And I do not know how to value revenune or profits from drugs that have not been approved for use in the United States. Thanks for the tip, though. If you have any more ideas please post another comment or email me: chroma at chromainvesting dot com.
April 20th, 2010 @ 7:55 am
Any thoughts as to why a perennial net-net stock? Is it Shalam has controlling votes with his class B shares? This cmpany throws of tremendous cash flow. Probably $2 a share for an $8 stock? There is a high short interst and I am not sure why? Lots of questions and no answers!
April 20th, 2010 @ 9:26 am
The short and honest answer is that I don’t know why VOXX is perennially a Net net stock. It was something I pondered before buying the stock. When I get a chance I will poke around and see if anything strikes a chord. Investor’s don’t like one person controlling a company, unless they are an activist investor trying to get rid of management. The real question it seems to me, is if a company is perennially a Net Net stock does an investor take a smaller gain before selling. My position is up 20% right now. Not bad for less than three months. But it is not my fair value estimate of the company either. What do you think?
April 21st, 2010 @ 1:38 pm
Hi
I just bought a small amount. I dont think 8X FCF is unreasonable as fair value. In looking at the history of the company it looks like the electronics industry changes so much that they have a great product and then they have inventory right downs. It looks like a double from here but need to do more research!
April 21st, 2010 @ 1:40 pm
PS. Except for the net-net part of it. Really need to know what they expect from the invision purchase. Another plus is obviously we are coming out of a recession and they should have tailwinds from that. Also there cell battery that charges from wi fi looks interesting.