Digging For Value In Housing: Outstanding Bargain In Universal Security Instruments

| About: Universal Security (UUU)

It is clear that the housing market has turned a corner. Sales rates are moving up, pricing is up, and inventory is low and dropping. See the lumber framing price index for more evidence of this recovery

Date Random Lengths
Composite Price
CME Futures
Contract Delivery Date
Mar. 15 $432 $395.1
Mar. 8 $423 $395.0
Mar. 1 $416 $380.3
Feb. 22 $415 $378.0
Feb. 15 $408 $395.5
Feb. 8 $397 $382.8
Feb. 1 $387 $352.7 March 2013
Jan. 25 $395 $367.6
Jan. 18 $400 $367.6
Jan. 11 $396 $373.0
Jan. 4 $389 $370.4
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This index was in the mid $200's for much of 2010 and 2011. Unfortunately many of the logical investment options (home builders, lumber suppliers) have priced in this recovery.

I have been searching for value in a housing related industry, which led me to Universal Security Instruments (NYSEMKT:UUU). This maker of smoke and carbon monoxide detectors was hit hard in the housing downturn. Sales plummeted from 26 million per year to about half that. Profits went from 4 million to losses.

Like the rest of the housing industry, Universal has begun to benefit from the turnaround in the market as well as its investments in new technology. For the quarter ended December 2012 sales increased 49% exceeding 4.75 million.

Here are their unaudited results for 3Q 2012:

Three Months Ended December 31,




$ 4,753,736

$ 3,186,197

Net income



Income per share:







Weighted average number of common shares outstanding:







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During the latest quarter the company earned a tiny profit. The company indicated in their last annual report that they would have 400-500k in increased engineering, design, and certification costs through the year ending March 2013. The company also noted 350-450k in marketing costs associated with educating customers about their new technology. These costs should subside overtime, leading to increased profitability in future quarters.

Universal presents good prospects for future sales and income however it also represents an outstanding value. This is a bargain priced growing company. Though the market it cap is less than 10 million, Universal has 2.5 million in cash, essentially zero long-term debt, and more than 25 million in stock holder equity. Book value exceeds $11 per share.

The company has been actively buying back shares and the outstanding share count is down to just over 2,300,000. Universal repurchased 11,000 shares in the most recent quarter.

By common metrics of value such as price to book and price to sales this company is an outstanding value. Given the initial success with their new products, lower future development and marketing costs, and the turnaround in housing I believe future profit prospects are good.

Current Price to book: .38; Price to Sales: .65 (.52 based on last quarters sales, which reflect the role out of their newest technology).

Disclosure: I am long UUU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.