Avalon Holdings: Deep Value, Great Golf and Behind the Scenes Drama

| About: Avalon Holdings (AWX)
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There are not too many people on Wall Street that follow a stock like Avalon Holdings (NYSEMKT:AWX), mainly because its market cap is less then $15 million, but I believe this little AMEX traded stock is what I call a diamond in the rough.

I do know that many Wall Street brokers/traders love to golf, so even if they have no interest in investing in Avalon Holdings (AWX) as a deep discount value play, they may very well want to check out the beautiful courses (3) that AWX owns, especially the premier course - Avalon Lakes, a Pete Dye course which Golf Digest rates as a top 100 public course. I live in Hawaii and play twice a week at some premier resort courses and they have nothing on Avalon Lakes.

If the value of the stock or the golf is not enough to pique your interest into taking a closer look at AWX, perhaps the ongoing drama between a large private individual shareholder and the Chairman of the Board of AWX might be entertaining enough drama to spur some interest.

First a brief profile of AWX:

The company is based in Warren, Ohio and has 217 full-time employees. The company has two main business segments. The first is Waste Management Services, which currently makes up a majority of AWX's revenues and income. The second is the ownership and operation of three country club facilities in one club

AWX has two classes of common stock - 3.2 million shares of class A common stock that trade on the AMEX and 600K shares of 10-1 voting class B shares that Mr. Ron Klingle, the Chairman of the Board, currently owns along with 200K class A shares. The structure of the company, with complete control being in the hands of Mr. Klingle, often scares a lot of potential investors away. I am not one who is scared away.

The following is a personal history in owning this stock.

I first stumbled onto AWX at the end of 1999 when I was using a stock screener to find undervalued stocks. I flew out in April of 2000 to attend a shareholders meeting and was able to personally meet with Mr. Klingle, the man who was running AWX up until about one week ago. After meeting with Ron, I understood that his first priority was to his company, employees and customers. He was not one of these CEOs who was overly focused on the stock price and because he was the personal owner of a majority of stockholder votes in AWX, he had the luxury of not being pressured by outside shareholders.

I came away from the meeting comfortable with building a sizable position in the stock, mailnly around $5 in a family/friends portfolio that I oversee. I was fully aware that the reward side of this trade might take awhile, but the downside risk was limited by the strength of the AWX balance sheet. In the first two to three years, my investment in AWX actually lost 50+%, but I was happy to be able to buy more at even lower prices.

Over the next five years, my patience paid off rather handsomely as the stock gradually rose and peaked at $10 a share in 2007. The credit crunch of 2008/2009 caused the stock price to collapse to under $1; the best that I can figure is that someone was forced to liquidate, possibly for margin call purposes, and the illiquidity of the stock crushed the price.

I started buying again at $4 and bought all the way down to $1, with my most aggressive buying done at around $1. Is is not often that you can buy a profitable company at 10% of its annual sales and 10% of its tangible book.

Since its low in December of 2008, the stock has rebounded and now trades around $3.25 a share, near a 52 week high, which translates to a market cap of $12.5 million. With revenues of almost $40 million and a net tangible book value of over $10 a share, it is still trading at a deep discount to the breakup value of each business. Virtually no long term debt (230K) and $1.45 of cash on hand makes AWX even more attractive

A very recent catalyst for a potential short-term upward move in the stock has been the recent announcement on March 1, 2010 by Mr. Klingle that he has stepped down as President and CEO of AWX and has hired Stephen Berry, a former Waste Management VP, to be the new President and CEO. Mr. Berry was awarded 450K in stock options as part of a long term incentive plan. I added to my position after this announcement as I believe the new CEO has plenty of incentive to unlock some of the shareholder value and get AWX trading at more reasonable valuation levels.

The behind the scenes drama (which can be seen more clearly on Yahoo's AWX message board) involves Dr. Nalluri, a psychiatrist and owner of more then 10% of AWX class A shares. He has been publicly bashing Mr. and Mrs. Klingle for how they are running the company and even opened his own website.

The amazing thing is that in all the time that he has been bashing AWX, he has also been buying the stock. According to a recent 13D filing, he has been a net buyer of the stock, adding some 40K shares in the last 15 months and was still buying as of a few days ago.

He does not understand golf nor thinks any money can be made in it ... Tiger who?

Disclosure: Statements above are the personal opinions of Edward Dostillio. This is not to be construed as a specific investment recommendation. Edward and his family currently hold a long position in AWX