Concord Camera, Inc. (LENSD)
At the time of my first purchase, the company had cash and readily salable current assets per share (net of all liabilities) significantly greater than the share price. With a conservatively estimated $6 per share in net assets and a price tag of only $2.50 at that time (split adjusted), there was a substantial margin of safety in the investment.
While investors should always be wary in these situations that management can continue depleting asset values and eventually leave shareholders broke, the company earlier began exitting its unprofitable digital camera business, and cutting back substantially on cash burn. The last fiscal quarter saw close to cash-flow breakeven, and I expect much of the same in future quarters (and years).
LENSD has nearly doubled in price since the first purchase a bit over a month ago, but tax consequences and remaining upside potential — to the tune of another 30-50% — prevent me from selling out. Normally I would not want to sell anyway as I prefer strong businesses that I can hold for long periods, but I don’t mind exitting a business with poor economics at a very nice profit.
Dave said,
December 20, 2006 @ 1:30am
Hi Joe,
A very nice pick. I think there is more to go with this one. I just picked up a small stake in them today. Wish I got them earlier. I think they could easily double even without making a profit.
I think their burn rate is going to quite small going forward. It seems to have stopped. Their book value is $61M and market cap only $25.9M. There is no fat on this one either. Almost all of that is tangible and could be liquidated.
It seems they are dumping the digital camera business which is probably a large source of engineering capex. I would find it hard to believe they can’t make positive profit margins just making those disposable cameras. If they do, they should sell for slightly above book value which is why I think they can more than double. And who knows, maybe they can even become a viable business and grow.
I am going to try to see if I can find a breakdown of gross margins by product line. I believe the digitals were negative and now that they are being “de-emphasized” things should get better. They should be able to write down a lot of this stuff as well and get the tax benefits. Of course these won’t be ectual cash flows which is all that matters at this point. If I had more info I could work out a prediction for net margins going forward.
I am sure you have noticed all the insider buying. I wonder if the CEO and these two other >10% holders are going to take it private. Someone should.
The thing that worries me the most are the pending lawsuits. That is harder for me to understand but with the CEO buying, this might not be a dire as it looks.
Cheers,
Dave
Joe said,
December 20, 2006 @ 2:02am
Agreed on basically all counts. I was lucky enough to get in when the company was at $2.45 pre-split which gave a HUGE margin. But I also still see a doubling potential with their assets and diminishing cash burn, so I’m holding on.
That said, I doubt they’ll ever have much bigger margins with digital cameras, and I wouldn’t be too bullish on greatly improved operations. They’ll certainly be “safer” in the sense that they at least don’t have negative gross margins and they’re sticking to their core business. But the SUC industry is competitive and shrinking (talk about a bad combination).
Lampert’s buying is probably a large part of what contributed to the recent run-up, and while I’m not suspecting any sort of buyout, it’s certainly a possibility (and would be a welcome one!).
-Joe
Dave said,
December 20, 2006 @ 4:56am
Another like that one
check out GLGC
Lots of cash and a recent insider buy from >10% owner Lloyd Miller who is somewhat of a takeover artist. This company just sold one of its divisions for $15M so add that to the cash pile.
I am looking into them now.
Dave
JoeCit - Intelligent Investing said,
December 28, 2006 @ 12:27pm
[…] I wrote about LENS two weeks ago in a post briefly discussing my basic thesis on the stock. To briefly sum up the general idea, LENS, despite the terrible economics of its core business (single-use cameras), LENS is sitting on a boatload of cash and saleable assets while trading for just a fraction of its tangible net worth. Today, I would like to more fully discuss catalysts behind the stock’s recent run-up, and potential future catalysts for reaching what I believe to be an intrinsic value still plenty higher than the current share price. […]