Audiovox (VOXX) a Net Net – Buy

chroma — Tue, 09 Feb 2010 05:20:31 +0000

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.

Chroma Investing » Audiovox (VOXX)

Audiovox (VOXX) a Net Net – Buy

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