It is well known truth that there has not been many interesting net-nets in US market during recent years. Screening stocks you can find some but most of them are low valued for very good reason. Better bargain markets have been somewhere else, mainly in the Far East. That’s pretty sad for only US investing deep value investors.
Every now and then, however, some interesting single bargain stock can pop up. VOXX Internationalc is one of them. The company is a global manufacturer and supplier of consumer electronic products in the automotive, premium audio and consumer accessory industries. VOXX has been net-net in the past before the year 2012. The company had a couple of profitable years 2012 and 2013 when its valuation rose higher.
After those years it has been more difficult for VOXX. From 2014 to 2017 the company mainly made a loss. In addition, the debt grew and cash reserves decreased. On top of all that, VOXX has made some less successful acquisitions.
A positive turnaround occurred last June when VOXX sold Hirschman for $166 million, a deal which was completed in August 2017. The sale both made the company’s liquidity situation better and allowed it to pay off most of its $115 million in debt. After that more cash in hand and less long-term debt the price of the share has moved around the NCAV.
Is VOXX cheap enough and quality enough stock to invest? Not an easy question. Right now, VOXX is trading ($5.30) a little under its NCAV level ($5.73). Tangible book value is $9.74 (Price/Tangible Book Value is 55%). There is not much margin of safety for the company’s NCAV, but would it be realistic to expect that the VOXX’s market price will rise to the level of the tangible book value in the near future?
Well, we should take a deeper look to the company’s assets and future prospects. It must be noted that VOXX garners very little analyst coverage. Just one analyst currently follows the company. Mostly lack of coverage can be a good thing. Low level of information may leave more room for earnings surprises. As an investor you are more or less on your own, to do your own research.
Searching the balance sheet, you should pay attention to 50% ownership of profitable automotive distributor ASA. It is a hidden asset recorded below its market value in company’s balance sheet. Passive income from ASA is alone $7 million a year. VOXX also owns nine operating facilities or offices located in New York, Indiana, Florida and Arkansas in the US, as well as in Germany, Venezuela and Hungary.
VOXX management believes the best path forward is a threefold approach. First is to potentially monetize additional assets within company’s portfolio. Second is make acquisitions and third is realign their business more scalable, profitable and cash flow positive. Each way has its own potential and risk. VOXX also has an authorization plan in place to repurchase up to 1.4 million shares. Even though company’s management admit that their share is clearly undervalued they prefer to spend money on business development and acquisitions. It is good question whether this the best way to create a shareholder value?
The company management forecasts a positive future for EyeLock. It offers an iris-based level of security. So far R&D costs have been huge. November 30, 2017, EyeLock lost $3.9 million compared to a net loss of $4.8 million in last year’s third quarter. The management believes it will begin to generate royalty income this year. Similarly, next-generation rear-seat infotainment system, EVO, which is now live with three large Automotive OEM’s, with other programs to follow should be near-term success.
There are also new programs in the healthcare space that, according the management, have significant growth potential over the next two years. Instead Premium Audio presumably decline modestly on the top line because of strategic decisions made to cut back certain programs in relationships to protect margins. Stronger bottom line performance is expected by the Premium Audio group in fiscal 2019.
Poor acquisitions are always risk when the company has cash and credit available – especially since VOXX’s history in this respect is not the best one.
Anyway, quarterly results show a growing profitability, VOXX has a strong balance sheet and diverse opportunities ahead. The company really needs positive results as a catalyst because founder and current chairman, John Shalam, controls the board with class-B shares and this closely held ownership reduces the influence of outside shareholders and activists.
Even though the company may be on the right path I prefer to get larger margin of safety to NCAV. Not only because of safety and avoiding various risks, but also in positive case to get reasonable upside opportunity. Maybe 20-30% would be enough and it should not be impossible to achieve. Stock price of VOXX has fluctuated pretty much. Fiscal 2016 highest price was 6.15 and lowest price was 3.40, fiscal 2017 highest price was 5.30 and lowest price was 2.50 and trailing twelve months highest price is 9.00 and lowest price is 4.64.