Last week I published a post outlining 2 net-net stocks. I got messages telling me to cover more net-nets and my follower count greatly increased! I am therefore back with some more net-nets that I have found. I personally looked for net-net articles in the past and found a shortage on SeekingAlpha.
What are net-nets?
Net-Net stocks were highly recommended by Benjamin Graham and the staple of Warren Buffet's early investing style. There have been numerous studies that show that diversified investors in a range of net-nets greatly outperform the market. Taking the Current Assets only and taking it away from the total liabilities you get the NCAV. If the share price is trading below the NCAV, if the company was to liquidate completely and stop trading, you would make an immediate profit on your position.
It is for this reason that net-net stocks tend to be on loss making companies. The fact that these companies highlighted below are small caps indicate that hedge funds cannot trade them (because there is not enough profit and liquidity in it for them.) This makes the stock less efficient and gives the patient retail investor a chance to profit.
A SeekingAlpha commented that a Benjamin Graham net-net should have a positive EPS as well.
Gravity Co Ltd (NASDAQ:GRVY)
Gravity was founded in 2000 in South Korea. They publish and develop games in Japan, Korea, Canada, USA, Hong Kong and Thailand. It's games are mainly online. Gravity has produced no Farmville, its biggest game is Ragnarok (MMORPG game.) The user base for their biggest game is falling, but the company plans on issuing an update to refresh their user base.
Gravity is a loss making net-net that is trading at below cash with P/C of 0.34. The EV/EBIT is a shockingly low 2. The P/B is 0.04 and P/S of 0.35. The market is essentially pricing the company as if it is heading for bankruptcy. This is a possibility with the declining member base for its headlining game and recent losses ($16.9 million, but could the new update change that?
The company doesn't have any long term debt and 8,070 million KRW in short term debt - the company has around 39,000 million in cash/short term investments to easily cover its debt loads though. The company to me therefore has room to avoid bankruptcy, even though the risk remains in the medium term.
Emerson Radio Corp (NYSEMKT:MSN)
Emerson Radio was founded in 1948 and is headquartered in New Jersey. Emerson Radio sells hardware and consumer products in United States and internationally. These hardware products include, microwave ovens, refrigerators, audio products, clock radios, televisions, telephones, cameras and tablet computers.
There is a potential downside risk with this company. There is a large Hong Kong based shareholder who is currently going through a restructuring and could be forced to liquidate his stage because of this. This could cause some downside pressure to the stock in the medium term.
The company has been generous to its shareholders in the past. In 2015 they gave a special dividend of 70 cents and they could do the same in the future.
MSN has some attractive fundamentals like Gravity. The P/S is 0.45, P/B of 0.43 and P/C of 0.48. The company has next to no debt and a Current Ratio of 22.2, which indicates it is in a healthy position and not likely to go bankrupt anytime soon. The company is losing money, but a small amount of 2.3 million.
Thank you, I hope you enjoyed another selection of net-nets for you to look at!
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.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.