Seeking Alpha

Singleton Student's  Instablog

Singleton Student
Send Message
A value investor with a focus on small-cap stocks.
View Singleton Student's Instablogs on:
  • George Risk Industries: A Low-Risk Way To Play A Rebound In Housing

    George Risk Industries (OTCPK:RSKIA) trades at 1.9x EV/EBITDA, making it a steal at $6.03 per share (closing price as of July 25th). The company is also sitting on roughly $25 million of net cash & marketable securities, which provides an excellent margin of safety for a market capitalization of only $30 million. George Risk Industries was incorporated in Colorado in 1967. It designs, manufactures, and sells push-button switches, burglar alarm components and systems, pool alarms, water sensors, and computer keyboards (security products comprised approximately 88% of sales in fiscal year 2011). As residential construction begins to rebound throughout the United States, I believe George Risk Industries will benefit immensely. The company did a good job growing market share during the downturn and is poised for the next cycle.

    Over the last twelve months, the company has generated $10.2 million of sales and $2.88 million of EBITDA. This is up from $8.9 million of sales in fiscal year 2011 (April 30th year-end) and $1.92 million of EBITDA, representing growth of 14.6% and 50% respectively. Capital expenditures at the company have averaged $158k annually over the past five years. Therefore, George Risk Industries has a free cash flow yield of approximately 52% (defined as [(EBITDA - CAPEX) / Enterprise Value].

    Ken Risk, the CEO of George Risk Industries, has proven over the years to be an excellent operator. He owns 58% of the company and is very much aligned with shareholders. The company's relationship with its largest distributor, Honeywell International (NYSE: HON), which accounted for roughly 42% of sales in fiscal year 2011, only appears to be strengthening (evidenced by the 2011 vendor agreement found in the 2011 Annual Report).

    A valuation multiple of 6x EV/EBITDA would boost the share price to $8.38, a gain of 39%. I believe the company's strong balance sheet and near-term growth prospects as well as share buybacks ($1.4 million has been spent over the past five years) and a current dividend yield of 3.8% warrant this valuation multiple.

    Disclosure: I personally own shares of RSKIA. The accounts that I manage also own shares of RSKIA.

    Disclosure: I am long OTCPK:RSKIA.

    Tags: HON, RSKIA, long-ideas
    Jul 27 10:23 AM | Link | Comment!
Full index of posts »
Latest Followers


More »
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.