Buy Cash At A Discount: These Companies Have Negative Enterprise Value

Tyler Durden's picture

With humans long gone from the trading arena and algorithms left solely in charge of the casino formerly known as "the stock market", in which price discovery is purely a function of highly levered synthetic instruments such as ES and SPY or, worse, the EURUSD and not fundamentals, numerous valuation dislocations are bound to occur. Such as company equity value trading well below net cash (excluding total debt), or in other words, negative enterprise value, meaning one can buy the cash at a discount of par and assign zero value to all other corporate assets.

Typically negative EV companies are associated with pre-bankruptcy cases, usually involving large cash burn, in other words, where the cash may or may not be tomorrow, and which may or may not be able to satisfy all claims should the company file today, especially if it has some off balance sheet liabilities.

In other far more rare cases, some companies may trade with negative EV even if they have positive LTM free cash flow (EBITDA-CapEx). Usually these arbs are rather well hidden, and certainly not within the roster of the far more popular S&P500 companies. We did a quick CapIQ search of all Russell 2000 companies (avoiding microcaps) for whom Net Cash > Market Cap. There were a total of 10 companies among the universe of 2000 that fit these criteria. We then further subdivided the category into companies with negative (far less valuable) cash flow, and positive cash flow.

There were just 4 companies in the last category. They are highlighted in the table below.

And if one includes short-term investments to the cash and equivalents one gets the following slightly expanded list:

Needless to say, those seeking absolute arbitrage opportunities in which a company has no cash bleed (assuming there are no hidden landmines in the Income Statement or Balance Sheet), could survive as a going concern and is retaining earnings right to the bottom line, and in which one can buy the cash at a discount, and get any other residual asset value as a gift, a good place to start looking is with a basket made up of CECO, IMN, IQNT and MAXY.

Source: CapitalIQ

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Cognitive Dissonance's picture

Lunch time?

<I bet it's an algo trap.>

Pladizow's picture

Well this is because cash is not worth anything when its denominated in fiat dollars!

Now if their reserves were bullion.....

Kitler's picture

These companies actually remind me of me...

Worth more dead than alive unfortunately.

quintago's picture

Unless you have a majority of the board seats, none of these are an ATM and you can't just go and pull your money out. Stupid article.

NotApplicable's picture

Stupid article is stupid.

Now, was this written by a Tyler, or was it an unattributed copypasta job?

"Free" cash. Now that's fuckin' funnay!

Dr Benway's picture

Yeah this is Simon Black quality article for sure..

Dr Benway's picture

I believe the commenter was referring to the article's not-so-subtle headline, namely "Buy Cash At A Discount", which would indeed imply free money.

Tyler Durden's picture

No, it doesn't. It means buying cash at a discount. It implies getting any other assets the company may have for free. It doesn't imply that any liabilities the company may have won't be a drain of cash in liquidation, which is why buyers should do their homework.

Ned Zeppelin's picture

i.e, this analyis provides at least prima facie indicia of some companies that are worth buying and actually worth doing a deeper due diligence dive into.  The kind of work algos don't do.  

strannick's picture

Simply put, if you see a company trading at less than its EV, and nothing off the charts crazy is going on with it, you should probably buy it.

In 2008 there were dozens of junior miners trading with negative EVs. They were deals of the century.

NotApplicable's picture

C'mon Tyler, you can do better than this.

Your opening paragraph contains two sentences. They contradict each other. The first rightly proclaims there is no longer a capital formation market. The second, describes how to participate in this non-market market in order to gain from the disconnect. At which point I call shenanigans.

But hey, ignore that if you want, and pretend I don't understand what free cash flow is. Meanwhile, you've just tarnished your intelligent image in order to try and appear snarky.

I just find it surprising that you consider picking up pennies in front of the proverbial bulldozer to be a winning strategy.

Or did this place suddenly turn into another stock picking blog?

Tyler Durden's picture

"At which point I call shenanigans"

You have every right to your opinion. Others will certainly disagree with your opinion. This is what makes/made a market.

Also, nobody is forcing you to do anything with the data presented. Data, incidentally, which proves what this article was set to describe: that there are companies not only whose market cap is below their cash but which also are generating free cash flow.

Or do you dispute facts?

As for picking up pennies in front of a steamroller, one thing about companies where the asset value is crushed is that they are certainly not priced to perfection, and in fact where bankruptcy is essentially priced in. In this regard, if the companies listed above demonstrate even a trace of asset value above cash (which as stands currently has zero implied value) their stock price would surge (at least in a normal market environment: that goes without saying). As such the companies listed above have far greater upside potential that the Apples of the world which for years have been priced, without fail, to perfection.

Collecting pennies implies little upside and massive downside: just the opposite of what is presented here.

Of course, one has to do their own diligence to determine if the names listed are worth an investment. Nobody is pointing a gun to anyone's head and telling them to buy.

Finally, while it is in your right to do nothing with this data, others, maybe some of the 10K+ people who have read this article, may and will do more work into these companies to discover just why they their cash is trading at a discount.

Or maybe you have an opinion on that too?

NotApplicable's picture

Sorry, but when someone states that there is no market, then discusses market strategies, well, I see a massive disconnect in logic. (In other words, I don't disagree one iota with your analysis, but that within a criminal cartel it is wholly moot.) Ten years ago, I might've ran right out and bought these stocks. Today? Well, I recognize that all equities are owned by DTCC and there is no longer any such thing as a segregated customer account. You don't hold it, you don't own it. In other words that cash isn't "free" (notice the quotes this time, please). No amount of due diligence concerning a company's books can change that fact.

Sure, plenty might opt to pursue these strategies, but I'm guessing there's not many of us who come here in search of them. Rather, we come here to see the Beast dressed down in public, as this is one of the rare places it happens. For that I'm very appreciative for what you do.

I realize there's multiple Tylers running around here, and short of a "Tyler Editorial Board" there will never true consensus amongst you, but still, I have an expectation of some limits. One of these limits is to not try to play the lesser fool in the Ponzi du jour.

So yes, this is a perfectly fine market analysis. Now, if there were only a market where participants weren't all marks...

strannick's picture

He's saying despite all the manipulations in the market, short of banning all stock trading, there are seriously misvalued equities. Take it for what its worth, and spare us the scrupulous  semantics. It's like listening to an econ 100 discussion for !@#$s sakes.

rocker's picture

Oh Please.  No Ponzi ???  The whole market is rigged, manipulated and ran by a Cartel of Rich Super Computer individuals who eat the average guy every day. As told on CNBC last month by a individual who owns one of the plugged in super computers. The average guy has no chance. We spent all this money on these systems and will win.

As told by Goldman Sachs when someone stole their software. "In the wrong hands, one could manipultate the stock market."  Yes, even the Banksters at Goldman, J.P.Morgan, Wells Fargo, Shitty Bank, Morgan Stabs, Barclays, Deuthe Bank, and the rest of them are in on it.  Tis the Season for Xmas Bonus every year. LOL again. 

So what market of integrity do you speak. Mumbi or Zimbabwe.  LOL   Tyler wins, hands down on this one.

The Mist's picture

Cash is luckily liquid. It still has value and probably will hold for at least a while longer.

caconhma's picture

Just look at ArQule (ARQL).

-       ARQL's Market cap is $163M. It has no liabilities and has $130M of cash and equivalents

-       It is a biotech with a very interesting/promising leading cancer drug ARQ-197 (Tivantinib)

-       It has two Japanese partners for the drug development and marketing in Asia and the rest of world (North and South America, EU, and East Europe)

-       All ARQ-197 development expenses are paid either by Japanese partners or by National Cancer Institute (NCI). ARQL is not paying for the drug development from its own packet. Instead, ArQule will pay its development share to its Japanese partner exclusively from the future drug royalties

-       Accordingly to the U.S. National Institutes of Health website, there are 28 ongoing clinical trials of ARQ-197 in such indications as Non-small-cell Lung (NSCLC) , Prostate, Breast, Liver, Colorectal, Head and Neck, Kidney, and other cancers. These clinical trials are conducted by ARQL and its Japanese partners as well as by the leading US medical/cancer research centers including: National Cancer Institute (NCI), Dana-Farber Cancer Institute, Ohio State University Comprehensive Cancer Center, University of Chicago Comprehensive Cancer Center, M D Anderson Cancer Center, etc.,

-       Furthermore, ArQule has other drug candidates in early development stages.

So, why is ArQule’s Market Cap at its cash and equivalents level? Well, a few months ago, ArQule Phase 3 clinical trial in a specific NSCLC patient subpopulation did not meet its primary overall survival objective but the drug did substantially slow down the cancer progression.  Consequently, the WallStreet does not think much about ArQule. However, the scientific community somehow does not share the WallStreet gloomy predictions. After all these leading scientific institutions are funding very expensive clinical trials.





Super Broccoli's picture

So those might be killer investments as much as putting your saving into Enron, nobody knows ;-)

LongSoupLine's picture


I'll stick to silver, MRE's and a Mossberg 500

Mr Lennon Hendrix's picture

MREs are gross.  I think I still have the onnes I ate 5 years ago in my intestine.

NotApplicable's picture

Dehydrated beef-patty FTFW! No need for rehydration, just eat it like a big cracker.

(or "Space Age Gainesburger" as we called them back in the day)

MillionDollarBoner_'s picture

Weeelll...I got the silver rounds, a smallholding running with chickens, dux etc...and the Mossberg 500A.

Guess I'm ahead, then :O) 

ShrNfr's picture

CECO has lost money since 2011. It does not look as if they will change the trend either.

Boston's picture

And MAXY has had NEGATIVE cash flow from operations for 4 out of the last 5 fiscal years. They've had ZERO revenues for 4 out of the last 5 quarters.

Taking one good quarter, in this fiscal year, and extrapolating, could be dangerous.

EscapeKey's picture

...still do due diligence - they could be the target of a major lawsuit, or they could be sitting in an industry where a goliath is about to enter the stage...

ShrNfr's picture

Or be blessed with a manglement that receives outsized bonuses for running through their cash on hand.

Dr Benway's picture

Unless you gain control of a company, the value to you as a shareholder is determined by how much of that cash flows through into dividends over time. Expressed differently, the value would be the assets less the proportion of cashflow leeched by management. If a company has $100m cash assets, and management every year eats half of cash inflows with the rest paid as dividends, the value would be $50m to non-controlling investors.

ShrNfr's picture

You should also add in the liquidation at what you expect the future book value to be, discounted by a suitable period of your ablility to predict.

Dr Benway's picture

Well if we assume the company will liquidate, at liquidation it's a full-on fee party, so there is even more cash that will not accrue to a non-controlling investor in the company.


Either way, going concern or liquidation, any analysis to determine fair value to non-controlling investors must take into account all fees and other ways the cashflow can be leeched before reaching said non-controlling investors.


I really have come to expect a lot more from ZH than this article. I bet this is gonna be a shitty day.

MillionDollarBoner_'s picture

Invest on fundamentals? - r u fukin wid me!?!

S'all 'bout da FED, Homes!

bobthehorse's picture

So when does this stuff finally fall apart?

When does the house of cards come down.

I don't know.

Dr. Engali's picture

Why did you change your original post? I agree with what you said...I expect better. The Hedge needs to be held to a higher standard, and it can't be left to turn into an NIA.

Dr Benway's picture

Yeah I agree with you, it does seem like what you imply.

Piranhanoia's picture

Landmines,  nice touch!    Then you get cluster****s.

Big Corked Boots's picture

Risk of accounting fraud?

EscapeKey's picture

B-b-but I thought the aftermath of Enron fixed accounting fraud once and for all?

Tortuga's picture

The MAXY is a biotech that sold it's only drug last year and has transacted $5000 business this year and stated : To date, Maxygen (MAXY


) has not been successful in identifying any strategic transaction for the company and there can be no assurances the company will be successful in identifying and consummating any such transaction in the future, that it will make any additional cash distributions to its stockholders or that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value.

Sounds like a Stimulus candidate to me with bonuses all around.

JohnG's picture

Only if is a "green" company.....

gringo28's picture

WSTL just secured a patent for their Homecloud device and their ethernet switches were just selected to wire the NYC subway system.

gringo28's picture

and WSTL has bot back ~15% of its shares over the last 2 years.

blunderdog's picture

I've worked for several companies which had negative enterprise value.

You wouldn't get "cash at a discount" from any of these schmoes.  You'd just get promises for future losses.

lolmao500's picture

Islamist sources in #Egypt say they will declare a Jihad in the country if #Morsi legitimacy is attacked and compromised.


Dr. Engali's picture

Before considering these stocks I would remind you to read the Hedges policy on conflicts / full disclosure:

Kreditanstalt's picture

I was amazed to learn that one of the four, "Career Education Corporation", runs for-profit "colleges".  It is utterly a creation of the student loan racket and preys on career- and job-desperate students and their parents.

Check out

This is SOOOO typically American.  A listed company that produces NOTHING and lives off the taxpayer.  Welcome to the new normal...