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Deswell Industries (DSWL) is a Chinese micro cap. If that fact alone isn't enough to scare investors away these days it also posted negative earnings three years in a row. Despite this I believe the company is a compelling investment with a large margin of safety at today's prices thanks to: 1. a rock solid balance sheet, 2. shareholder friendly management and 3. positive free cash flow.

The ugly part

Before discussing Deswell Industries I guess I should start with a short discussion on why I think investors don't need to worry about fraud, and the explanation is simple. The company become public through an IPO in 1995, is debt free and has been paying steady dividends. The...

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