Three Opportunities to Buy Small Cap Stocks at Cash Value

It’s an unusual anomaly to be able to buy stock in a company for roughly the same price as the cash it has on its books.  However, with the decline in real estate prices and escalating oil prices, we see that happening with three small cap stocks: zipRealty (ZIPR), Housevalues (SOLD) and Autobytel (ABTL). 

zipRealty

zipRealty shares had held up rather well during the market down-turn earlier this year.  This was especially impressive considering its exposure to the declining real estate market.  However, over the last few weeks ZIPR’s shares have declined significantly to close Friday at $4.00.  While that might seem justified for an online real estate agency in a declining housing environment, taking a closer look at the balance sheet indicates that the market may be over-selling this stock.  With $72M in cash and NO debt, zipRealty’s current cash holdings equates to $3.59 per share (90% of current share value).  That would mean that the market values zipRealty’s business at only $.41 per share!

Housevalues

Meanwhile, Housevalues shares have been rather stagnant lately and closed at $2.86 on Friday.  Housevalues has $63M in cash on its balance sheet and less than $2M in debt, which gives a cash value of $2.53 per share (88% of current share value). The net $.33/share valuation seems too low even with the current housing slump.    

Autobytel

Autobytel shares have really suffered this year dropping over 58% ytd to close Friday at $1.13.  The dramatic run-up in oil prices seems to have been the most likely cause as sellers dumped the stock in anticipation of automobile advertisers cutting their budgets. However, with the recent decline in oil prices (now less than $129/barrel) this may be the time to take a position in this stock. In addition, Autobytel has almost $44M in cash and NO debt. That currently equates to $.99 per share (88% of current share value)!  So in effect, investors have the opportunity to invest in this business at $.14 per share.

With these stocks trading so close to their cash value, there seems to be limited downside risk in the short-term and potential for a nice bounce back as the market takes notice. Should the market not take notice, a potential suitor certainly will. These companies would all make attractive M&A targets due to their low valuations and high cash balances.

Disclosure: At the time this article was published, the author held a financial position in Autobytel.

Comments

[alphameister]

All three companies are reporting losses, so the burn rate of their cash is pertinent to this analysis. SOLD at least reported a lower rate of loss in the March quarter and also owns the best chart by far among these three stocks.

[The FamilyMan]

Interesting, compelling analysis . . . yet for one of these three, at least, some confusion in numbers. Autobytel issued their 2Q 08 data today -- not particularly great, to be sure -- but they note a cash position of $35.7M as of 6/30/08 and $27.6M as of 12/31/07. (Short-term investments don't add much.) What's the basis for your $44M figure...and does this not now reduce the threshold below the roughy $1 or $1- and-teens-cents point?