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Summary

  • Emerson Radio has long had lots of cash in its balance sheet.
  • Due to its rather unfriendly corporate governance, though, shareholders have not been able to touch that cash.
  • This changed today, so Emerson Radio had a positive development in what regards shareholder friendliness.
  • Still, I remain neutral because although Emerson Radio is now more friendly, the recent fundamental developments are still unfavorable and might lead to a lack of profits in the short-term.

I've long covered Emerson Radio (NYSEMKT:MSN). I've been bullish on it, but turned neutral due to business dropping off unexpectedly. The bullish thesis on Emerson Radio came from the fact that the company had so much cash in its balance sheet, that you could basically be buying a profitable company for free. Yet, the part of it being profitable is now endangered, and the cash has long been in that balance sheet without shareholders being able to access it.

That changed today. Emerson Radio has declared a $0.70 dividend which amounted to 43.7% of yesterday's closing price. Though the dividend is large, Emerson Radio is fully capable of paying it. Emerson Radio will use around $19 million of its temporarily-lower $48 million in cash (that's bound to increase again due to a temporary effect in accounts receivable). This development is clearly a positive for Emerson Radio, as it signals management is becoming more shareholder-friendly.

I'm not turning positive on Emerson Radio just yet, though. I'll remain neutral. The reason for this is that due to fundamental developments in the latest quarter can drive a significant deterioration in earnings going forward if they're not reversed promptly. As is, I have the fear that the company will quickly turn unprofitable, at which time it will remain dead money even with the excess cash in its balance sheet. Still, one needs to applaud the improvement in shareholder friendliness, and keep monitoring the situation to see if fundamentals are reestablished to a point where one can again foresee a profitable future for the company.

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.

Source: Update: Emerson Radio Springs A Surprise