Today one of my watchlist items fell well below what I considered to be a fair value range and I decided to nibble on a few shares. My first purchase of the year has the following metrics, without giving away what it is I’m investing in:
– Trading within 5% of its book value (about 10% if you exclude intangibles);
– No debt or abnormally large deferred revenues;
– Cash is just above 1/3rd of market cap;
– Enterprise value to sales of about a half;
– Profitable but not excessively so;
– Market took it down considerably due to the growth trajectory over the past couple years clearly abating and competitive margin pressures are rising somewhat. Clearly pessimism has set into the market – the chart has been trending down for the past half year. Most of the bad news is likely baked into the stock price;
– Short interest is relatively high.
So far this is just a tiny position, but if it continues to go down I will accumulate more shares.
(Update, February 14, 2014: I got about 1/7th of my desired position. It’s pretty clear short sellers are covering into this.)