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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Confused's picture

student loan racket and preys on career- and job-desperate students and their parents


If student loans can't be discharged, why then, do parents have to (in some cases) be co-signers? 


My best guess? The youth, at some point, will all just "walk away" once they realize its impossible to pay. So their parents are on the hook. Besides, they have something of value. This set-up ensures no one walks away from their obligation. 

Confused's picture

Oh, and guess who "just" bought Federal student loans.....


Some one is getting paid........

GoldbugVariation's picture

In the era of Amazon, it's common for bricks and mortar retailers to consist of cash, near cash and valuable real estate, plus a 'business' with negative enterprise value because it is projected to lose money every year.

Pairadimes's picture

Is this before or after the huge management bonuses about to be paid out before the tax increases hit?

q99x2's picture

Who can afford to audit them.

long-shorty's picture

RTK has a hugely negative enterprise value if you include the value of their holdings in RNF.

n.d.v.'s picture

Did noone really catch that Greenlight Capital Re, which is on the expanded list is essentially the "Berkshire of David Einhorn"?

swabeyjw's picture

INTC just announced they are issuing debt to buy back stock. The dividend is 4.5% and I expect the new debt will be at much less than 4.5%. So they improve cash flow by buying their own stock. Could there be another round after this? Will they get the chance to average down debt costs as NIRP progresses ...looks exponential. Kind of like the inverse to a debt crisis. Seems just silly. Is this a liquidity crunch on the street?

So is there a stock screen for debt cost is less than dividend and dividend is less than 35% of cash flow?

swabeyjw's picture

Yes...but, in this case, as an investor, I see the upside and not the down side of the article reference.

INTC has foundry capacity idle. No need to favor investment. INTC at the bottom of March 2009 was at about 12.50/share and dividend of $0.14. Today div is $0.23... so, on dividend basis, 0.23/0.14 * $12.5 is about $20 - todays stock price.

Will the next correction be bigger than 2009...perhaps. Would the timing allow me to sell gold and buy cheaply priced great stocks...perhaps.

For me better to be in metals and a few stock than just metals or metals and bonds. Sad to say but always looking to be long a market.

Money Squid's picture

I sure hope this buy tip from ZH is all that its pumped up to be cause I just emptied my kids college fund and bought these.