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Falling From Sky (Ticker: LQDT)

|Includes: Liquidity Services, Inc. (LQDT)

Falling from Sky

Background:

Liquidity Service, the largest online surplus asset buyer market, starts in 2002. Over the past 12 years, it has grown by adjusted EBITDA at 40.4% CAGR and with 10% adjusted EBITA margin. Prices peaks in 2012 at 65 and fell down

to 12 now. They currently face short-term challenges.

* Adjusted: include adjustments for stock-based compensations and a portion of certain acquisition pyaments & goodwill impairment.

Rationals:

1) A Leader in Niche Market ( Surplus Asset buyer Market), little and no competitors.

Market is still in early stage. (2% penetration rate for now)

In recent two years, company continues to grow on top line (much slower than before), but not on bottom line.

$57 cash and No Debt

Proven Business Model and Management Team over the past 10 years.

2) currently it is being priced PE @ 12 and EV/EBIT = 4.7, significantly lower than peers in the industry.

3) Insider is buying it. You could buy stocks now lower than insider now! Insider owns a big chunk of stocks.

Upside:

Before 2012 it grows EBITDA at 40.4%. I do not think it will stop growing. I think it will continue to grow above 12% given their resources. Timing is uncertain. But given their cash position and valuation, they could do so many things to increase their earning.

Downside:

It will take a while for market to recognize it

Disclosure: The author is long LQDT.