ValueVision's Massive Rally Creates Optimism

ValueVision (VVTV) has been gaining some big momentum as it has shot up from its low stock price of $0.18 to $0.74 and up again after hours to $0.83.

I first began looking at VVTV because it was:

1. Trading at a huge discount to what I believed was its liquidation value based on Graham’s Net Net formula,
   • (No longer a net net due to its increase in off sheet obligations)
2. An easy to understand business,
3. Cash flow from operating activities was positive,
4. Short term uncertainty surrounding the company

It also confirmed David Dreman’s Rule 12 from Contrarian Investment Strategies

Rule 12: (A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.
(B) Positive surprises result in major appreciation for out-of-favor stocks, while having minimal impact on favorites.

ValueVision’s catalyst was based on the company pursuing strategic alternatives that included the sale of the company. However, on Jan 27, 2009, it was announced that there were no final bidders for the business and subsequently, the stock price fell 50% as institutions gave up and sold out.

The other short term uncertainty surrounding the company, its upcoming $44mil preferred stock redemption to GE Equity, was restructured and delayed until 2013 which provides plenty of breathing room for the company to turn its performance around. At the same time, the new restructuring agreement with GE included 6 million warrants to purchase VVTV at $0.75 and a stock buyback plan of $1.5 million over the next 12 months.

I wasn’t impressed with the conditions (still not) but the recent massive insider buying does finally prove that insiders believe the stock price to be incredibly cheap. Previously, analysts and portfolio managers were grilling the management for not purchasing back its shares but the recent buying activity has created some much needed surprises and optimism.

If VVTV remains at around 75c, GE is then entitled to use its 6 million warrants which will cause the stock price to fall as the shares are diluted.

However, ValueVision is a cheap stock, not as cheap as it used to be, compared to its ongoing operations. Insiders and institution buys as well as a featured video from The Street naming VVTV as “The Best Stock Under $1” doesn’t hurt in gaining more public interest.

As an ongoing business, VVTV seems to be worth around $1.50 at a minimum.

Disclosure: I hold VVTV at the time of writing

Comments

[ksmithdc:]

Interesting read, thanks.

Mar 29 02:45 PM

[Repsonsible...:]

Well I checked the key stats This is a sweet little opprotunity for some quick profit IMO . I'll buy some first thing in the morning , I figure it might go to $2 in a few weeks time and maybe a bit higher I'll Sell and take a better then 100% profit quickly and move on to the next little gem there out there just gotta keep your eyes open.

Mar 29 03:16 PM

[vvtvcheapo:]

This is worth well north of 2. remember they own their own headquarters worth 20 million. just on assets itself, stock is worth 2.25. put a mutiple on that. i'd vote against ANY takeover below $4. Stock is up a great deal from lows but should have never gotten there. Its a real business with real turnaround in earnings. Someone taking it over at 30-40 million while there's 60 million in the bank and 20 million in real estate value makes zero sense for equity holders. Not selling below 4.

Mar 29 10:00 PM

[Jae Jun:]

I agree with all points that the business is super cheap. Although I managed to buy some, I wish I had bought more.

The market was pricing in bankruptcy which is absurd. They are cash flow positive which isn't too many net nets can brag about.

I originally got into VVTV as a short term play (1 yr max) but now that I have re-evalutated the business after the restructuring and new cable contracts, this company could explode back up given time.

Mar 29 11:50 PM