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A Cheap Cash Rich Play: InTest

|Includes: inTEST Corporation (INTT)

InTEST (NYSEMKT:INTT) is a designer, manufacturer and marketer of thermal, mechanical and electrical products that are used by semiconductor manufacturers in conjunction with ATE, in the testing of ICs. INTT is the 6th cheapest stock on the small and micro-cap screener with an acquirers multiple of 5.25. The current price of the company is around ~$4.71 with a market cap of <$50 million.

INTT's balance sheet is top notch. It has zero long-term debt, with a cash position that is 45% of the market cap. FCF is positive and it has increased YOY at a 28% rate. GAAP earnings have increased at a 10% rate YOY, but on a CAGR basis they have increased at a 16% rate in the past three years.

Free Cash Flow Statement

2014

2013

2012

Revenues

41,796

39,426

43,376

Cash Operating Costs

36,411

35,207

38,845

Operating Cash Flow

5,385

4,219

4,531

Change in Working Capital

256

449

(2,114)

CAPEX

831

424

431

Free Cash Flow

4,298

3,346

6,214

Weighted Avg. Shares Diluted

10,466

10,419

10,347

Free Cash Flow Per Share (FCFPS)

0.41

0.32

0.60

What I like about INTT is the high amount of cash on the balance sheet. There are three key things that management can do with the cash on the balance sheet. Issue a dividend (the last dividend issued was a special dividend in 2012), buy back shares, or complete a strategic acquisition. Management (who owns 29.9% of shares outstanding), has been looking for an acquisition target for the past year. They do have one in mind but they need to wait for the end of the second quarter to make the final decision. Their plan is to branch off out of the ATE market to stabilize earnings due to the volatility of the ATE market.

INTT is also an undervalued unnoticed company. What I mean by unnoticed is that the average volume in the past three months has only been ~21,563. With an EV/EBITDA of 4.07 and zero debt on the balance sheet they are the perfect acquisition target due to the undervaluation. Even if INTT does not get bought out they are a very well-run company with gross margins of >48% and FCF margins of 10%.

I expect FCF, EPS and revenues to continue growing in the future. My rational for this is the historical growth of these former three items plus a great management team who has intent to acquire the perfect target for their business model. A cash position of $22.49 million will soon get deployed, either in the form of a dividend, share buyback or acquisition. In my opinion I feel like investors should expect an acquisition in the near future over the former two options.

To wrap up this quick write-up on INTT, we have found out the following: INTT is a zero long-term debt company with a huge cash position that makes up 45% of the current market cap of $50 million. FCF has grown at a 28% YOY and EPS has grown at a 10% rate. The company is the 6th cheapest stock on the acquirersmultiple.com on the small and micro-cap screener with an acquirers multiple of 5.25. In theory this company should outperform the market in the short term. Investors are advised to do their due diligence before making any investing decision.