Here is a quick actionable idea for you that has a high probability of producing near-term gains of 1.69-6.5% within a month or a 122-212% annualized gain (depending on the price). On February 18, 2016, P.A.M. Transportation Services (NASDAQ:PTSI) announced that it will be participating in a modified Dutch auction tender offer to repurchase 325,000 shares outstanding. On a percentage basis, this would equal around 4.6% of the shares outstanding.
In the PR, the company stated that it will retire 325,000 shares at a price no less than $27.00/share and no higher than $30.00/share. Furthermore, the offer will expire on March 17, 2016 at midnight. Since the deal is a modified Dutch auction tender, shareholders who want to participate will indicate with their broker how many shares they want tendered and also within the price range that is suitable for them.
PTSI's management will then figure out the lowest numerical 'price range' in which they can retire 325,000 shares. If the deal goes through, investors participating will receive the purchase price after the expiration date.
Overall, the company is looking to spend $8,775,000-9,750,000, depending on what price the offer goes through at. With $26.12m on the balance sheet, the company has more than enough ability to retire 4.6% of the shares outstanding.
At the price of this writing ($28.15/share), investors can make a quick 6.5% return within a month, if tendered at $30/share. On an annualized basis, that equates out to 212%. Hypothetically, if you get in at $29/share, and it tenders at $30/share, that is a decent 3.44% return in a month or annualized at a 150% return. Going even further, if you get in at $29.50/share and the deal gets tendered at $30/share, you will grind out a nice 1.69% return in a month, or annualized at 122%.
If I were to participate in the opportunity, I would indicate that I would want my shares tendered at $30/share. Is asking for your shares to be tendered at $30/share too greedy, with a chance of failure? Maybe. However, if the deal goes through at $29/share, and I hypothetically miss out on a quick return, I would not be discouraged.
First, if the deal goes through, the company will retire 4.6% of the shares outstanding. This would instantly increase the overall value of the company, on a per share basis. Furthermore, the Dutch tender, will help to create a price floor, and help to provide additional upside (shows investors that the company is looking out for shareholders).
Secondly, the company is undervalued on an EV/EBITDA and EV/Revenue basis, 4.50x and 0.67x, respectively. Moreover, I have done extensive research on the company in the recent past (can be found here), and I know the company has a bright future for long-term investors. Thus, if the deal does not go through, I believe that investors can still generate alpha by holding onto PTSI for the long run (2-3 years).
Finally, the company has a history of giving back to investors via Dutch tenders. For an example, in 2014 and 2013, the company announced a Dutch auction tender to buy back 571,865 shares at a price of $50.00/share and 675,000 shares at a price of $20.50/share, respectively. Given the fact that insiders own 59.11% of the shares outstanding, further utilizations of Dutch tender offers will gradually increase the value of their holdings.
The biggest risk is to someone solely focused upon tendering their shares, then exiting the deal within a month or so. Thus, if the deal does not go through, or if it goes through at a price lower than your declared tender price, you may not make a quick buck. However, if the deal does not go through, you're a long-term investor, and you believe in the company's long-term prospects, the risk of missing out on a tender is much lower. If you have read my original report on PTSI, my target price was and still is $37.61/share.
The big question is; will the deal go through. In my opinion, yes it will go through. I believe that the deal has a low chance of failure due to the fact that the company indicated how many shares it will buy at maximum. Thus, no matter how many investors try to pile in on the deal, the company will only repurchase 325,000 shares, no more no less.
Indicating that you want your shares tendered at a lower price than $30/share should, in theory, allow you to get your shares tendered at a higher probability than the ones who go right to $30/share mark. However, because I believe in the company's long-term prospects, if I were to participate in the deal, I would indicate that I would want my shares tendered at $30/share. Though, it would only be a small percentage of my entire holding.
This is a great example of an overlooked company, with potential for near-term, actionable returns.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.