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:
- 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)
- An easy to understand business,
- Cash flow from operating activities was positive,
- Short term uncertainty surrounding the company
It also confirmed David Dreman’s Rule 12 from Contrarian Investment Strategies
Rule 12: (NYSE:A) Surprises, as a group, improve the performance of out-of-favor stocks, while impairing the performance of favorites.
(NYSE: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