The dollar's decline has been in the news for causing a surge in price in precious metals. An indirect benefit of the flight to hard assets has been the growth of people investing in collectibles as a store of value. Santa Ana, California based Collectors Universe Inc. (CLCT) is the leading company involved in third party authentication and certification in the United States for collectible items such as rare coins, sports memorabilia, and autographs. With an increasingly knowledgeable and skeptical base of customers, growing interest in buying hard assets, a strong dividend, and some of the strongest financials in the small cap market, Collectors Universe is one of the best micro cap, publicly traded opportunities currently available.
The main strength Collectors Universe affords is its strong niche for certifying collectibles. In the age of Photoshop and the internet, it is easier now than ever to forge collectibles. Authentication of these goods is critical as some collectibles such as Honus Wagner's baseball card (currently worth over $2 million) are considered to be prize investments by their owners.
CLCT also operates a coin exchange to facilitate the sale of rare coins. Growing interest in buying physical gold and silver also has been a key catalyst to the company's growth as these coins need to be validated for their legitimacy and for accurate metal composition. Only 10% of rare collectible coins and cards have been stamped, leaving most of the collectible coins and cards on the market in need of authentication, which could spur CLCT's growth. The only competition CLCT faces are some small, privately held companies.
Unlike many other small cap opportunities, Collectors Universe offers proven returns to investors. The P/E is cheap at 7.5 and the PEG is at only 0.38. The company is highly profitable with a 37% profit margin along with expected earnings growth of 20%. Its lack of debt and 61% return on investment capital indicates that the management is effective at maximizing revenue. Through these high margins, CLCT is able to offer investors an 8.45% dividend yield which is expected to increase in the future. Compared to other business service companies that have an average ROI of 6% and dividend of 0.75%, Collectors Universe is an excellent value.
With an estimated discounted cash flow value (using an 11% discount rate) of $39.76, Collectors Universe is a bargain at current levels (~$15 per share). It's strong niche in validating rare collectibles, limited competition, and high profitability make it an excellent buy.
Disclosure: I am long CLCT.