I have posted about Solitron before in a three part series
Part 1
Part 2
Part 3
The company is a classic net-net and I'm happy to report with the latest quarter the company is still trading below NCAV, my thesis is still intact. I have a copy of the updated net-net template below:
The biggest changes are an increase in cash, and a slight uptick in liabilities due to an increase in payables. The NCAV is slightly lower at 3.71 vs 3.80, this is related to the uptick in payables.
Operating Performance
The good news is the company is performing well, revenue increased 2% while net margin increased from 21% to 24% due to lower material costs. Net income increased 17.5% on the lower goods costs.
The company generated $459k in operating cash flow, and spent $10k on capex, the free cash flow went directly onto the balance sheet as an increase in cash and treasury bills.
The negative news is that the order backlog decreased 7% YoY and the company has changed their line from expecting to operate at a break even in the future to the possibility of a loss if current conditions continue. Management also mentions that higher cost of materials could result in a loss, which seems to be in direct conflict with what they actually experienced this past quarter. I take these statements with a grain of salt considering at the end of the year they expected to merely break even yet the company generated a 17% increase YoY on it's net income.
Final Thoughts
I'm happy with the quarter, the company is still profitable, cash flow positive and growing their cash balance. My biggest concern is the change of the language in their filing regarding future orders. No one can predict the future, and Solitron has generally been very negative regarding future prospects but it's still a point of concern for me. I haven't changed my position at all, I'm still waiting for the market to recognize Solitron's value.
Disclosure: Long Solitron Devices
Thx Nate,
ReplyDeleteI don't about where the earnings will go. Semiconductors overall are hitting a hard patch due to lacklustre customer spending. Solitron has more exposure to governments/space travel so I doubt that will impact lower revenue. It might though. If it does, that should just be transistory, as markets recover etc etc. Backlog did decrease, but the company did say the decline in orders was due in part due to some timing issues of major customers. If stock goes down due to dissapointing earnings, it would be a great time to buy because you would get a structurally profit comapny at a discount to cash. This doesn't happen in private markets.
>> If stock goes down due to dissapointing earnings, it would be a great time to buy because you would get a structurally profit comapny at a discount to cash.
ReplyDeleteI hope so.