Boss Holdings Holds Some Promise

| About: Boss Holdings, (BSHI)

Anyone who has chided me before for my love affair with micro-cap stocks is really going to dislike me for this one. Boss Holdings (BSHI>OB) operates in several businesses, including an industrial glove and protective wear unit (the largest with around 57% of revenues), pet supplies, and specialty/novelty goods (like balloons).

Extremely thinly traded and boasting a princely market cap of $12.5 million, the company looks like it could be a bargain (for anyone who can get their hands on it in the first place). Boss Holdings is trading at a 50% discount to its book value, or about a 43% discount to its net tangible assets. Most of that sum is in accounts receivable and inventory, with the liabilities showing around $3.5 million in debt.

Furthermore, the company has been modestly profitable, earning around $700K per year over the last several years (normalizing ’04 results for a one time tax benefit recognition). Its revenues (around $54 million TTM) have been increasing greatly thanks to a bolstered sales staff, coupled with a number of acquisitions. Unfortunately, this has been offset by eroding margins due to higher input costs (including oil prices, which affect raw material costs for their gloves segment).

Risk factors are certainly present and remain worrisome. For all the talk about book value, the company has liquidity problems: just over $300K in cash on the balance sheet, which is – get this – up from a grand total of $0 at year end 2005. With only minor cash flow and debt around $3.5 million, this may be cause for some concern, not to mention the fact that the company doesn’t really sport any genuine competitive advantages (save maybe for its Boss trademark, which is somewhat well-known in its field).

Yet, with the attractive price/book, modest profitability, and share price at a P/Sales of 0.23, investors stand to profit mightily IF:

1) Some catalyst brings price in line with book and the company doesn’t dip into the red

2) Management can find a way to boost margins (a possible but not highly likely scenario given industry conditions) even to around 2-3%, and the shares continue trading around a PE of 18 (this is pure conjecture), or

3) The company is bought out by an acquirer who can capture the growing revenue stream, cut costs, and add liquidity.

But again, even if you think the probability of success is very high, don’t rush to the gates to buy shares. You’re not likely to get many anytime soon.

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Tagged: , Textile - Apparel Footwear & Accessories
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