Black Box Corporation Is Trading Near Historic Lows Despite Dividend Yield

| About: Black Box (BBOX)

Summary

5.77% dividend yield comes from a 29.7% payout ratio.

Low Forward P/E of 6.51 uses conservative guidance.

Goodwill Impairment charge hides an operating profit for FY2016.

Black Box Corporation (NASDAQ:BBOX) is a $117.52M Networking & Communication Devices company and the enterprise value of the company is $228.05M. With market caps between $50 million and $300 million, many stocks like this are considered Micro Caps. Based on one or more measures of stock valuation, this stock may be a potential winner in the long-run.

Looking at the company's dividend yield first, we see that they are currently paying about 5.77%. While the company has so far recorded a loss in 2015, a major portion of this loss came from a non-cash impairment on Goodwill of $157.2 million. Other than that they have positive operating cash flows.

Meanwhile, the company reported net income of $5.57 million in the latest quarter and the dividend amounted to about a 29.7% payout ratio.

A big concern for this company is that the CEO recently resigned and there are some questions about the strategic position of this company in a cloud computing environment. Until these questions are resolved, the stock may trade at a depressed valuation.

In a recent earnings call, the company reported that order backlog is actually up 2.3% to $173 million versus $169 million last year. They also reported that debt has been reduced by $32 million or 17% from last year. The company also has a buyback program in place.

Valuation

To understand, P/E ratios, you must know that it is a simple division of price by earnings. Low P/E ratios show possible value. In this case, you must back out the Goodwill Impairment charge to get an adjusted $2.20 EPS for the trailing 9 months. Assuming that the stock may earn another 30 cents in the next quarter, you get an adjusted EPS of $2.50 for FY2016. With the stock trading at $7.66, the adjusted PE ratio is close to 3.0x.

This stock trades at an extremely low forward PE of 6.51. The forward P/E is the inverse of the earnings yield, but also forward-looking. It is price dividend by estimated earnings.

A Price to Book ratio is simply the stock price divided by the stock's equity book value. A lower P/B ratio shows that the market undervalues the accounting value of equity on the balance sheet. The company's stock currently has $13.57 in book value per share. A P/B ratio as low as 0.56 indicates an undervalued stock.

Some investors like to look at the Price to Earnings Growth (NYSE:PEG) ratio. This ratio shows valuation versus growth rates by dividing the PE ratio by expected growth. Few companies have a PEG ratio as low as 0.6 and this would indicate an affordable stock.

Technical Perspective

Technical data can help an investor understand the stock's current momentum and pricing trends. The current price of $7.62 is 17.05% above the 52-week low at $6.51 per share. This stock's recent 52 week high is $22.7 and the current price level is 66.43% off of that level. When a stock trades below the 20 day moving average ($7.76), 50 day moving average ($9.29), and 200 day moving average ($15.31), there is a strong chance that it is oversold and possibly undervalued. If a stock is trading significantly below the 52-week high, it may indicate value. However, there may be a good reason for a significant drop. Furthermore, a stock trading at the top of a 52 week range may not be overvalued.

In this case, the Impairment of Goodwill and departure of key leadership may be driving negative investor sentiment.

Price Target

All else being equal, a stock with a low Price to Book ratio

could be valued close to book value per share, but in this case, after subtracting out Goodwill and Intangibles, the stock already trades near an adjusted book value.

Rather, valuation may be driven by the forward earnings and a dividend yield. The current payout ratio on the dividend is sustainable, assuming business remains stable. A forward P/E of 8x may be a better valuation for this stock. This provides a price target of approximately $9 per share. With a stock like this, it may be best to average into your position over a period of time.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.