They currently have about 23.8 million in cash + investments, plus another 3.5m or show in other current assets (1.2m is AR), which easily covers the 780k or so of liabilities. The company is currently selling for about 22.9 million, so they trade for a slight discount to net cash + investments.
The company is also still profitable. Sales were actually slightly up, but gross margins were slightly down, leading to a reduction in operating income. Still, the company is very profitable, and on pace to generate over 700k in operating profit this year. Also, due to a reduction in current assets, the company generated 870k in cash this quarter. Not bad for a company with a negative enterprise value.
With the added space the new article provides, I thought I’d drill down a little deeper into the business itself. Towards the end of their 10ks and qs, the company is kind enough to break down each of their business segments. Doing so reveals that the company’s security alarm business generated about 970k of operating profit last year and 1.33 million of operating profit the year before with assets of 2.82 million and 3.43 million. That’s a pretax ROA of around 35% both years! The other products had 126k and 151k of profits on assets of 1.08m and 1.18m, for a pretax ROA of just over 10%. That gives the company a pretax ROA of around 30% both years! While pretax ROA will probably be closer to 20% this year, I still think that’s phenomenal for a company selling with negative EV. Also, the segments operate with a current ratio of at least 5:1. They could surely reduce this ratio and greatly increase ROA.
Other quick notes: The company repurchased about 5k shares this quarter, which is a little disappointing. The company continues to release new products to release new products, and notes that they are gaining market share. For the first time since 2003, the company changed the value of their investment in a land partnership. Since it is still recorded at cost, it seems they put in another 10k into the LLP. While the investment is still small compared to the size of their cash and investments, it is sketchy that they’ve held the investment for this long, provided no color on it, and now put more money into it.
In sum, the investment thesis is definitely still intact. The company is selling for less than the value of its investments and continues to operate a profitable and high return business. While I wish the company would get more aggressive in returning excess capital to shareholders, preferably in the form of buybacks, and stop with some of the (minor) strange allocation decisions, the company is ultimately a very safe investment. I don’t see any downside for an investor at today’s prices, and as Mark Sellers says “Focus on the downside and let the upside take care of itself.”
Disclosure: Author is long RSKIA.OB