Parlux (PARL) originates, markets and distributes "prestige" fragrances licensed from celebrities. The company pays royalties to Paris Hilton, Kanye West and other celebrities to sell perfumes headlined with these stars' names.

While the company has been through some rocky times (its subsequently-departed president actually won the award of "Worst CEO" in 2006), the company appears to be back on track. Sales were up last quarter (year over year) in a very tough retail environment, and costs were lower. Sales are expected to be up this quarter as well, as the company has been hard at work bringing in new celebrity fragrances that augment and diversify its product portfolio.

Below is a list of 24 stocks that are between $1 and $5, have net positive cash on their balance sheets, have insider buying, and trade at or below 50% of book Value. This is a good starting point from which the reader can do some further work on before deciding to put on any trades on. I included EBITDA and Revenue stats as well. Please note that stocks in this price range can be very risky, so the reader should examine these names carefully before making any decisions. Yahoo Finance was used for this activity.

Last year at this time, we rolled out what we believed to be the first index comprised of companies trading below their net current asset value. It was an experiment to test the notion that "passive" management of net/nets could generate above-market returns.

The CS21 Net/Net Index was down about 36% in its first year, versus -40% for the Russell Microcap Index. Hardly proves our theory about the relevance of applying a scatter gun approach to net/net investing, but we'll continue to let this index run as is rather than rebalancing, in order to judge the results over a longer time horizon.

Over the last several years, I have periodically mused through a series of articles that I thought shares of Parlux (PARL) were mispriced given the underlying book value and the growth potential of newly licensed brands. I continue to hold that view.

Today, despite economic conditions, the difference between the share price of Parlux and its book value and future potential has never been greater. Book value continues to sit around $5.50 per share and the pipeline of new or upcoming fragrances has grown to include such notable names as Jessica Simpson, Josie Natori, Queen Latifah and Marc Ecko. Given the level of the disconnect between price and potential, I would be surprised, no stunned, if some party did not take advantage of the situation and propose to acquire Parlux. In reviewing various possibilities, Mr. Glenn Nussdorf quickly rises to the surface as perhaps the most viable candidate.

Alan Greenspan has called the recent bloodbath in the financial markets a once in a generation event. A quick scan of the Wall Street Journal shows that very few stocks have been spared the market's wrath.

However, until the last week, shares of Parlux Fragrances (PARL) had performed exceptionally well in the face of the mounting financial crisis. Unfortunately over the course of the last week, shares of Parlux Fragrances have been punished to the tune of 25% off the recent high to a closing price of $5.31 on September 17 due to the bloodbath the market has become. The recent price action brings to mind the adage "Buy when there is blood in the streets". Certainly, Wall Street has not been bloodier in quite some time.

How many times have you reflected on events in your life and thought, “If I had only done this, my life would be different?” Some people might think of different educational or career choices they might have made. Others may think of improving relationships, physical fitness or certainly their finances. Perhaps buying and holding shares of Dell (DELL), Microsoft (MSFT), or, more recently, Google (GOOG) or MasterCard (MA) would come to mind.

"Be fearful when others are greedy but be greedy when others are fearful" is one of Warren Buffet's most frequently repeated quotes.

After watching the market take its toll on shares Parlux Fragrances (PARL) this week, many investors are trying to determine whether to be fearful or greedy. During the first three days the week of January 14th, Parlux shares fell from $4.00 to $3.17 on volume of less than 500,000 shares. Unlike plenty of other companies reporting results and guidance below expectations, I am pleased to note that Parlux reported absolutely nothing. Mr. Market has for no apparent reason thrown the Parlux baby out with the bath water.

Since I first wrote about Parlux (PARL), shares have fallen nearly 13% to just above $4.00. Of course this must mean that PARL's turnaround must have hit a few potholes in the road, correct? The answer is not that I can see.

PARL's recent 2Q earnings release exceeded analyst's expectations handily as they smelled mightily sweet to investors at $0.10 earnings per share. PARL's recent 10-Q filing shows a couple of factors that I did not anticipate. First, sales increased more than I expected due to increased sales albeit at lower margins to foreign distributors. Secondly, PARL was able to make deeper SG&A cuts than I expected. The benefits to these two factors are obvious: (i) diversification from the US economy and (ii) a reduced cost structure improves profitability and the chances for completion of a successful turnaround.

Parlux Fragrances (PARL) has been both a financial and emotional roller coaster for investors from 2004 to the present. Shares began in 2004 under $3 (split adjusted) and proceeded to rocket to a high of over $19 per share in early 2006 before falling back below $3 in August 2007. Today, shares trade at approximately $4.60 per share after bouncing off a recent low below $3. Various factors contributed to the decline in share price including: Sarbanes-Oxley compliance issues, negative publicity regarding the former CEO, failure to enter into new license agreements, significant insider stock sales, the sale of its Perry Ellis brand perfume and most importantly declining financial performance (which has recently improved – more on that later).

In August 2006, Glenn Nussdorf (a major investor in PARL customer Perfumania) requested (and subsequently received) permission to purchase 15% of PARL's outstanding common stock. Shortly thereafter, Nussdorf began an activist shareholder leading to the ouster of then CEO Ilia Lekach and the installation of Neil Katz as Chairman and CEO in May 2007. For more details on this wild saga, interested readers should review the most recent 10-K.

Key Points:

Also, Mr. Nussdorf demanded, in the letter, that the Company make immediate, full and clear public disclosure of the purposes of the massive stock repurchase authorization and how it is intended that any shares repurchased by the Company, whether prior to, on, or after the record date, will be treated for purposes of his consent solicitation.

Turns out Perry Ellis, which owns the license, blocked the deal. And Perry Ellis, of course, knows its true value. Yet another in a string of deals Lekach couldn't pull off -- and yet another reason that he earned his title along side non-greats of years past: Paul Eibeler of Take-Two (TTWO) (last year) and Scott Livengood of Krispy Kreme (KKD) (year before.)

PARL 1-yr chart:

A Copy of the Letter:

Dear Board Members:

According to traders who know the stock, Lekach's selling has undeservedly punished the stock over the past six months, but the stock has moved higher recently as word circulated Lekach was nearly done selling.

While Lekach has been selling his stake in the company, eCom Ventures' controlling shareholder Glenn Nussdorf has been buying up shares of Lekach's company Parlux Fragrances (PARL).

As part of such exploration, Mr. Nussdorf and/or his representatives have had preliminary discussions with the Company's management and have had preliminary discussions with potential financing sources to obtain the funds necessary for such a transaction.

First, I scoured the web for any news that might have been released. I checked Yahoo! Finance and Google for any new news but I found nothing. I also checked SEC EDGAR for any new filings and discovered none since October 4th.

Given that I found nothing new and it was a holiday Monday (Columbus Day) I decided that the fluctuation in Parlux share price might be short lived. I set a limit order for $6.25 for my 400 shares in the Special Situation Real Money Portfolio. The trade occurred shortly after I put in the order.

Mr. Nussdorf sent a letter to the Parlux Fragrances’ Board of Directors indicating that he did not believe that Victory International would be able to buy the Perry Ellis line from Parlux Fragrances. Glenn Nussdorf provided the following three reasons why the transaction would not likely occur:

1. Victory International does not have the financial means to go through with the transaction.
2. The licensor of Perry Ellis would not likely consent to the transaction.
3. It is likely that this transaction would require shareholder approval and some large shareholders might not support the sale of Perry Ellis.

Recently, Glenn Nussdorf was granted approval to purchases of more than fifteen percent (15%) of PARL's outstanding shares.

Parlux Fragrances has become a serious concern for the Special Situations Real Money Portfolio. Let me detail the time line of how the Special Situations Real Money Portfolio got involved with Parlux Fragrances and what has happened since.

* June 13, 2006 - A member of Fat Pitch Financials Contributor’s Corner posted a message in our Special Situation Discoveries Forum (membership required) regarding PF Acquisition’s intent to take Parlux Fragrances private by acquiring all outstanding shares for $29.00 per share. The shares closed that day at $18.74. I saw huge profit potential, so with greed in my eyes I put in a limit order that night.
* June 14, 2006 opening bell - My order was filled first thing in the morning for 200 shares at $21.73. I expected the price to continue to climb up.
* June 14, 2006 mid-morning - I discovered Herb Greenberg just wrote a negative article on the Parlux deal. From that article, I discoved that Bill Mann of the Motley Fool also wrote up a warning about Parlux Fragrances and its CEO Ilia Lekach back in 2003. At first I was worried about Herb Greenberg’s article but there seemed to be some question regarding his journalism. However, Bill Mann’s comments should have caused me to act, since I’ve met Bill Mann and trust his research and opinion. I do remember checking to see if Bill would also write about this latest Parlux event but he didn’t. I really wish he had. It might have knocked some sense into me.
* June 15, 2006 - Members of Contributor’s Corner point out some concerns with this deal. The Miami Herald and MarketWatch both issue negative articles. In the Miami Herald article, I noted analyst Paul Kaump’s comment, ‘’For [Ilia Lekach] to not follow through on this would be catastrophic to the company’s value and management’s credibility.” Given Mr. Lekach’s past failed attempts, I figured he would have to follow through on his offer. I was so naive.
* June 20, 2006 - I head off to the hospital with my wife whose water has broken. Thoughts of the stock market leave my mind as I wait for my daughter to be born.
* June 29, 2006 - Parlux Fragrances delay filing their 10-K.
* July 5, 2006 - Nasdaq sends Parlux a delisting notice.
* July 12, 2006 - Ilia Lekach withdraws the buyout offer. PF Acquisition indicates that they called off the deal because they have received several offers from third parties for some of Parlux Fragrances brands.
* July 24, 2006 - The 10-K is finally filed.
* August 10, 2006 - Herb Greenberg disses Parlux's results, notes the company is blaming its woes on short-sellers, and that the 10-Q filing will also be late. Ugh! I start looking for an exit.
* August 16, 2006 - Parlux Fragrances announces it is going to sell Perry Ellis rights for a total of $140 million to Victory International (USA) LLC. I look for a big jump in stock price but apparently no one believes this deal is for real at this point.
* August 17, 2006 - The 10-Q is delayed again and on cue the ambulance chasers (i.e., lawyers) announce shareholder lawsuits.
* August 23, 2006 - The NASDAQ once again gets a delisting notice and a Form 4 announces that Ilia Lekach sold 62,720 shares to satisfy a margin requirement. This reminds me of some other insider activity I wrote about in June.