Meade Instruments: Easily Overlooked

| About: Meade Instruments (MEAD)

Meade Instruments (NASDAQ:MEAD) is a company that has lost money for years. Its business of designing and manufacturing telescopes and other optical consumer products is on the decline. But after some restructuring and new management, the company now finally appears to be returning to profitability after many long years. Despite this, the company trades at about half of its net current asset value, giving investors the opportunity to profit from this apparently turned around company.

After hemorrhaging cash over the last few years, the company finally managed to be free cash flow positive (albeit in a very small way) in fiscal year 2011. Production has been moved from California to Mexico, poorly performing units have been divested/discontinued, and new products have been brought to market. The result is a company in good financial shape with no debt and $5 million in cash. Meanwhile, the company trades for just over $5 million, despite current assets of $14 million and total liabilities under $4 million.

In addition, the company's losses
may be overstated. It appears the company is rather conservative with its accounting, as fixed assets have been largely written down through years of depreciation, but are still in use. Meade's property, plant and equipment account is now smaller than the company's depreciation charge for last year, while the company "had no material capital expenditure commitments at February 28, 2011."

You wouldn't be alone as a value investor in this company, as Paul Sonkin is also an owner. Sonkin's Hummingbird Management owns more than 15% of this company, and Sonkin has been a director of the company since 2006. The company's CEO also owns 10% of the company.

Meade has come a long way since I first discussed it, but there have been a few updates at ShadowStock tracking its progress.

Disclosure: Author has a long position in shares of MEAD