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Cheap, Unloved, smallcap 'Ben Graham' Value Play

|Includes: Stanley Furniture Company, Inc. (STLY)

Ok, back by popular demand, I have another oversold, underappreciated, cyclical smallcap Ben Graham/Martin Whitman value retail/manufacturing play in a just hated industry (right now), due to this historic recession. This company is one of the cheapest and oversold in its industry, with a MC of $36M, Price/sales of .23, Price/Book of .56, Low public float of 9M shares, with 10.35M total outstanding. This company is selling way less than its intrinsic value. This company has been in business since 1865, established in 1924, and had 1450 employees, as of Dec09, but are currently aggressively reducing. This company is not only a retailer of their products, they also are a manufacturer, and they have two distinct product lines. This company had been paying a continuously increasing .10/qtr (.40 annual) dividend for the last 6 yrs, until recessionary glum sales hit the bottom line, forcing management to suspend the dividend in early 2009. They have a diversified sales and marketing platform, with sales to over 3000 different customers in 2009, with approximately 8% being international. There is no customer concentration risk. They have two wholly owned manufacturing facility’s, one in North Carolina, and one in Virginia, about 2M sq ft combined, are considered modern, well equipped and maintained, and a 300K sqft Warehouse in Va, also owned.

Most recent 10Q shows decline in sales from last year, but increase  Q over Q, still with overall losses. Most of the loss, however, was attributed to one time accelerated depreciation, and charges related to prior restructuring, closing of plants, transferring operations and the like, mitigated somewhat by ongoing cost reduction efforts.

As of July10, they had cash on hand of 18.9M and total debt of $15M, having just paid a large chunk ($12.9M) of the debt in a creditor prepayment negotiation to avoid penalty for prepayment. Remaining debt service requirements are $3.8 million in 2011; $3.6 million in 2012, 2013 and 2014; and $458,000 in 2015.  Current Ratio is 3, meaning they ample short term cash to pay near term debt and bills.  As of Sept 10th, they have a S-3 filed with the SEC, for a Rights offering, similar to a Secondary, to offer more shares to raise up to $10M, and a maximum of $12M if ‘oversubscribed’. Actual Share Price has not been announced. The current PPS seems to factor in this dilution, as there was only a negligible drop on this announcement. Also, all current issued employee and management compensation stock options are underwater, unexerciseable, and may expire worthless (good for common, as less prethought dilution). They got a $6.6M tax refund in 2009, due to sustained losses, and I would expect the coming up filing for 2010 to be similar, with losses carried forward, offsetting sales, and acting as a tax ‘cushion’.

They also receive funding, thru a ‘Continued Dumping and Subsidy Offset Act’ (CDSOA), which is payments from the Government to offset antiduty orders for imports.

They recorded income of $9.3 million, $11.5 million and $10.4 million in 2009, 2008 and 2007, respectively, from CDSOA payments and other related payments. In addition to these payments, the Government has set aside over $137M over the last 4 yrs, which this company feels they are due approximately 27% of (recent percentage allocation), which would be approximately $32M in back distributions, but this is held up in Court, pending outcome.  However, as of April10, the current ongoing uncontested amount expected thru this program is $1.5M, not including any previously withheld monies, and is expected to be received 4Q10.


The company I am describing is Stanley Furniture Co, INC out of Stanleytown VA.



Recent 10Q


Stock price appears to have bottomed in the $3.40s mid June, and has been in an unbought/unsold pessimistic limbo for the last 4 months. I think this is a very cheap value play on an oversold and hated industry segment, that will recover as clarity on US recession recovery becomes more evident, spending on consumer durables rises again, and the company’s cost cutting metrics show effectiveness.


Any ‘surprise’ moneys awarded retroactively, thru the subsidy program would absolutely zoom the stock price, making it an instant goldmine.


I recommend accumulation of STLY shares sub $3.45 (use limit orders) on weakness, current investor fatigue, and overall macroeconomic industry sales fear environment. RSI 44.

Long STLY.





Disclosure: Long STLY