Don't show againAuthenTec: Cheap By Many Measures, Especially Net Net Deep Value
- What I want to see: Wall Street is projecting sales of about $5.4 million for Q1/09, a decline of almost 60% from the same quarter a year ago.
Along with that, analysts see AuthenTec’s earnings per share coming in at about a -$.14 per share loss for Q1/09 down from a profit of $.02 a year earlier.
Amazingly, AuthenTec has met or beaten analyst’s estimates every single quarter as a public company (7 quarters), while lowering those expectations due to bad news intra-quarter.
I want to see AuthenTec’s business trends stabilizing at the very least, and not getting any worse.
I know that AuthenTec will massage the numbers to at least meet expectations, that’s not what matters.
What matters to me is their outlook, forward guidance, and industry trends.
This includes their use of cash flow, which had been increasing lately, even in the face of lower overall sales and reduced profits.
I know that AuthenTec was going to be dipping into the cash flow well here over the next couple of quarters, but I want to make sure they are still on a very low cash burn rate, and that things are not getting worse for my investment thesis to still hold water and for me to recommend maintaining shares in the company.
Jae Jun’s analysis of AuthenTec’s deep net-net value territory
Authentec in Deep Value Net Net Territory
I’m sure readers of Peakstocks.com are well aware of what has been going on with AuthenTec.
Chris has been providing excellent coverage on the company but I wanted to highlight some numbers and put a simple valuation on the company for you all to ponder.
If you are unfamiliar with deep value investing and searching for net net’s, it is a formula Ben Graham came up with and what Buffett calls cigar butt investing.
Net Net Definition
Basically, a net net is a company that is selling below liquidation value. That is, if the company was sold this instant, what would all of its assets minus its liabilities be worth.
The formula, known as Net Net Working Capital or Net Current Asset Value is:
Net Net Working Capital = Cash and short-term investments + (0.75 * accounts receivable) + (0.5 * inventory) - total liabilities
You can get more detailed explanation as well as a free automated investment spreadsheet that calculates this for you from Old School Value.
Net Net Calculation
Let’s take a look at the latest financial statements for AUTH.
From their latest filing on March 18 AuthenTec had:
- $45.2 million in cash
- $18.1 million in short term investments
- $4 million in accounts receivables
- $5.8 million in inventories
- $9.4 million in total liabilities
- 28.62 million shares outstanding
If these numbers are then plugged in to the formula above, the liquidation price for AUTH comes out to $2.09. This is a discount of 9% to the price of $1.91 as of May 5th. Depending on how you feel about the company’s capability to collect payments and turn over its inventory, the discounted percentage for accounts receivables and inventories can be adjusted.
So what does this mean? Well, it means that AuthenTec is currently trading very close to what you would expect to receive if the company was to liquidate. However, if you believe the company has a future as a going concern, this price can also be a floor to the downside.
If you enjoyed this post and would like more information on deep value stocks, stock analysis, and a collection of simple to use free investing spreadsheets, visit Old School Value.
- Bottom Line: AuthenTec is one of those recovery/takeover stocks that is trading so cheap, and is such a small part of my (Chris here) current allocation and portfolio, that the risk/reward favors us right now.
As we can see from Jae’s careful and very conservative analysis, AuthenTec is trading below its net net value, and more than that, significantly below cash value of $2.21 per share (a 15.6% discount!), and below tangible book value of $2.58 per share (a 35% discount!).
AuthenTec is ripe for the pickings…
The question is, will anyone want to rummage through the scrap heap that is AuthenTec and purchase the company on the cheap to secure its intellectual property, even with declining business trends?
AuthenTec’s earnings call will give us further insight into whether or not business has stabilized, and whether AuthenTec has a future as a going concern.
If it does, I can’t see why a larger competitor wouldn’t want to order up some nice incorporated patents, and ready-made branding on the cheap.
Want More?
- Read: my last quarterly earnings and conference call breakdown here.
|
*Variables You Should Know About AuthenTec (NASDAQ: AUTH) |
|
|---|---|
| Current Recommendation: |
HOLD |
| The Company: | AuthenTec, Inc., is a fabless mixed-signal semiconductor company that provides fingerprint authentication sensors and solutions to the high-volume personal computer (PC), wireless device, and access control markets.AuthenTec’s sensors use a patented technology called TruePrint that reads beneath the surface of the skin to the “live” layer where the true fingerprint resides. |
| Why Buy Now: |
|
| Market Cap: |
$55.5 |
| Revenue (TTM): |
$68.03 |
| Cash/Debt: |
$62 / $0 |
| Current Price: | $2.00 |
| Risk Rating (?): | 10 (Highest Possible Risk) |
| Position Size (?): | 1/4 (12-17-07), 1/4 (1-17-08), 1/4 (1-23-08), 1/4 (7-3-08), 1/4 (8-4-08) |
| Buy Around Price (?): | $13.50 (12-17-07), $13.25 (1-17-08), $12.00 (1-23-08), $10.00 (7-3-08), $7.50 (8-4-08) |
*As of 5-6-09. Except share price, all values in millions.
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(2) comments to “AuthenTec: Cheap By Many Measures, Especially Net Net Deep Value”
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August 8th, 2009 at 11:13 pm
Seems like AUTH is going back up somewhat. It really was cheap compared to its cash and liquidation value.
August 8th, 2009 at 11:31 pm
Hey Jae,
I agree…something is going on over there…there was massive institutional buying over the last couple of weeks then no movement at all with a pretty good (relatively speaking) earnings release.
Either way, I think that something is going on, and there might be some more good news on the horizon at AUTH, possibly the takeover that I’ve been waiting for.
Chris