- Big 5 Sporting Goods, Stanley Furniture, and Medallion Financial all offer intriguing micro value plays.
- Small and micro caps can offer diligent investors meaningful returns.
- TAXI is a high yielder uniquely positioned to benefit from rising interest rates.
- STLY is currently trading at a P/B of around 0.55, and has over 40% of its market cap in cash, restricted cash, and short-term investments.
- BGFV is currently offering its shareholders a div yield of 3.34% and a P/E ratio of 11.419.
In a world in which Apple (NASDAQ:AAPL), Disney (NYSE:DIS), and Google (NASDAQ:GOOG) seem to reign supreme, the little companies far too often lose out on the lion's share of investor information and idea sharing. While I have every confidence that my iPad's inundation with article after article on the market's mega cap offerings will never cease, I am rarely graced with the pleasure of an article on a company possessing a market capitalization of less than half a billion dollars. As a result, I have elected to introduce myself to the Seeking Alpha community with an article intending to shed light on three of these lesser-known investment opportunities.
Now, with regards to my title, I would like to first touch on the company dealing in tables. Stanley Furniture (NASDAQ:STLY), a company possessing a market capitalization of a meager 40 million dollars, designs and manufactures wood furniture through its Stanley Furniture and Young America brands. Both brands are targeted at and designed to appeal to the premium share of the furniture market quite broadly.
As for the bad news, STLY currently trades at a negative price to earnings ratio of around -2.69 and operates with a negative profit margin and ROE. Management, however, has sought out a path to redemption through restructuring and has elected to halt domestic manufacturing operations of its Young America brands - and now, in the words of its CEO, is "looking forward to the prospects of focusing our team solely on the growth and profitability of this brand (Stanley Furniture) in the short-term." These efforts, however, are not what I believe makes this stock so interesting. The company is currently trading at a price to book valuation of just 0.55, and is holding 16.7 million in cash, restricted cash, and short-term investments on its balance sheet. As if that was not enough to convince you of the downside protection, the company has also traded with technical resistance at right about the $2.60 level, with the 10-year low being just 10 cents below at $2.50. Indeed, STLY makes for a unique value proposition worth keeping an eye on.
Next up, tennis. Big 5 Sporting Goods (NASDAQ:BGFV), a sporting goods retailer similar to that of Dick's Sporting Goods (NYSE:DKS), is operating 420 stores within the states of Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oklahoma, Oregon, Texas, Utah, Washington and Wyoming. The company, while operating in many of the same product categories, such as fitness and sporting equipment, apparel and footwear, fishing and hunting, and golf and racket sports, appears to act quite differently as an investment vehicle.
BGFV possesses a market capitalization of just $268M, and is most definitely a little brother when compared to the $5B market cap of DKS. However, as the oldest among my siblings I can tell you that big brother doesn't always win. BGFV is currently offering its shareholders a div yield of 3.34% - nearly triple that of its much larger rival's yield of 1.13%. Furthermore, as of March 30, 2014, the company still had $9.2M available for future share repurchases under its $20M program. A peek at Big Five's earnings also reveals a P/E ratio of just 11.419 - trading at a discount to its competitor's 16.27. One final case for Big 5 should be made on the basis of its technical performance. Since the company's July 29, '13 high of $25.00, the stock has plummeted to $11.99 as of market close (06/11/14). Should the company return to its former glory through tightened margins and a resurgence in the demand for firearms, we could be looking at an over 125% capital appreciation from current levels.
Lastly, taxis. Medallion Financial Corp. (NASDAQ:TAXI) is a specialty finance company that is in the business of originating and servicing loans that finance the taxicab industry (particularly taxi medallions) and other niche markets. It is also a company that I have followed for more than a year, and in which I finally took a personal position on 06/11/14 at just under $13.00/share. TAXI has a market cap of $326M.
TAXI's first quarter offered much promise as the company reported its highest earnings in nearly 10 years at $6.766M, its managed assets reaching an all time high at $1.363B, a net interest margin which increased by almost 9% from 6.36% to 6.92%, and a quarterly dividend increase to $0.24/share.
Furthermore, Medallion Financial has also managed to uniquely position itself as an investment prospect. While in a rising interest rate environment, TAXI's extremely attractive dividend yield of 7.38% can often be a point of fear and contention for investors, a look into Medallion's business model should help to settle these nerves. Lenders and financiers, which is the business in which Medallion chiefly operates, actually benefit from rising interest rates. This should translate to increased profitability for the already massively profitable company. As a result, this significantly high yielding company has a line of defense against the effects of rising interest rates.
Our financial markets are designed to operate as a function of all available information. Given that large and mega cap companies have such frequent delivery of this information, they are far less likely to reflect significant mispricing.
Transversely, given the lack of attention being paid to the outgoing news, technical performance, and underlying fundamentals of small and micro cap companies, they do every so often offer substantial value propositions hidden in plain view.
Disclosure: The author is long BGFV, TAXI. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This Author has no position in STLY, but may initiate a long position over the next 72 hours. Readers should be aware of the risks involved with Micro and Small cap companies, particularly those valued under $100M. I am not an investment advisor and these opinions are entirely my own. This article and its statements are intended to inform and aid in the generation of ideas. Individuals should thoroughly research any and all mentioned companies before initiating a position.
Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.