2 Value Stocks Below $2 (Follow Up)

|
 |  Includes: JMBA, SPRO
by: Yale Bock

Investors should always be interested in equities selling at low prices. In my December article, "2 Value Stocks Under $2," I introduced Jamba Juice (JMBA) and SmartPros (SPRO) and why I thought they were attractively priced.

Let's take a follow-up look at what has transpired with these two companies since then, and answer the question of whether they still represent good value at the current market price.

Jamba Juice

In case you decided to skip the first article, Jamba Juice is a lifestyle company which offers smoothies, food, beverages and consumer packaged goods for people interested in healthy living choices.

In the 4th quarter of 2011, Jamba Juice reported a GAAP loss of $9.8 million or (.15) per diluted share. During the same quarter of 2010, the GAAP loss was $12.2 million or (.21) per share. On an adjusted GAAP basis (taking out depreciation, amortization, special one-time charges and stock option expense), the 2011 net loss was $8.5 million or (.13) per share versus $13.5 million or (.23) cents per share in 2010.

4th Quarter 2011 revenue increased 5.4% to $44.3 million from $42.1 million in the same quarter of 2010 as a result of an extra week added to the fiscal year of 2011. Company owned comparable sales increased 7.7% for the three months, system wide sales were ahead by 5.7%, and franchise operated stores also rose by 4%.

Other notable developments since December 2011 include the following:

  • Acquisition of high-end specialty tea seller Talbott Teas, which was seen on ABC's "Shark Tank" television show
  • A new credit line with Wells Fargo for $6.0 million was announced
  • During the conference call where management discussed the quarter and its outlook for 2012, CEO James White said the CPG business would exit 2012 with 50,000 points of distribution, nearly double the current total of 30,000

  • The JambaGo concept currently has 50-80 units in trial, and White stated he thought by the end of 2012, 400-500 units would be operational

  • Jamba Juice will pursue other built on acquisitions like Talbott Teas

Valuation

Jamba Juice currently has almost 20 million dollars of net cash and no debt . Diluted shares outstanding total 85 million. Since the December 2011 article, the stock price has risen from $1.30 to the current $2.15 per share, a gain of 65% in less than 3 months. Still, the important question is what kind of value is it at the current price?

The current market capitalization is $2.15*85 million or $178.5 million. If we back out the cash, the total enterprise value is 178.5-20=$158.5 million dollars.

The important question becomes how much EBITDA, or operating cash flow does JMBA generate for the current year and in subsequent years? Estimates range from $11.8 million to $15 million for 2012. If we take the midway point of $13.1 million, the yield valuation looks like EV/EBITDA=13.1/158.5 or 8.2%. Using a P/E valuation makes little sense as Jamba Juice was not profitable for 2011.

Maybe even more important is whether management can grow revenue from the current total of approximately $250 million to $500 million in 3-5 years and build the revenue, operating profits, cash flow and net profits commensurately as if it does, investors will more than benefit from that growth.

SmartPros

SmartPros is a provider of accredited professional education and corporate training services. The company reported full-year 2011 financial results on March 8, 2011. Total revenue fell 3.6% from $17.62 million in 2010 to $16.99 million in 2011. Net income improved, however, to $154,000 or .03 cents a share, from a loss of $129,000, or (.03) cents a share, in fiscal year 2010. EBITDA increased 42.6% to 1.37 million in 2011 from $961K in 2010.

In commenting about 2011 results and the upcoming year, CEO Allen Greene was cautiously optimistic, remarking that the company is carefully increasing hiring as potential sales activity has recently increased. Management is careful about moving too quickly because it owns a few businesses that are seasonal and it wants to be very conservative about how to approach a possible economic rebound.

Valuation

The stock price of SPRO currently sits at $1.91 per share, which is down a few cents from when I last wrote about it. With almost 5 million shares outstanding, the total market capitalization is 5*1.91=$9.55 million. There is $6.3 million of net cash on the balance sheet and no debt. If we back out the cash, the total enterprise value is 9.55-6.3=$3.1 million. The EV/EBITDA ratio is 9.55/1.37=6.97. If we back out the cash, the ratio becomes very interesting-3.1/1.37=2.26

SPRO pays a .0125 cent per quarter dividend. The priority for the cash is to acquire other businesses in the same industry but management states it believes sellers are currently asking too high a price. If management starts to show better growth in the business, especially on the top line, the current price could prove attractive.

Disclosure: I am long JMBA, SPRO.