(Image: Zen Buddha Silence, by Marilyn Barbone)
January 31, 2021
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Five Star Senior Living Inc. (FVE): http://boolefund.com/five-star-senior-living-inc-fve/
North American Construction Group Ltd. (NOA): http://boolefund.com/north-american-construction-group-ltd-noa/
Vera Bradley, Inc. (VRA): http://boolefund.com/vera-bradley-inc-vra/
Lazydays Holdings, Inc. (LAZY): http://boolefund.com/lazydays-holdings-inc-lazy/
Karora Resources Inc. (KRRGF): http://boolefund.com/karora-resources-inc-krrgf/
Diamond S Shipping Inc. (DSSI): http://boolefund.com/diamond-s-shipping-inc-dssi/
DHI Group, Inc. (DHX): http://boolefund.com/dhi-group-inc-dhx/
Saga Communications Inc. (SGA): http://boolefund.com/saga-communications-inc-sga/
Northwest Pipe Co. (NWPX): http://boolefund.com/northwest-pipe-co-nwpx/
Smart Sand Inc. (SND): http://boolefund.com/smart-sand-inc-snd/
Terravest Industries Inc. (TVK.TO): http://boolefund.com/terravest-industries-inc-tvk/
LGL Group, Inc. (LGL): http://boolefund.com/lgl-group-inc-lgl/
G-III Apparel Group, Ltd. (GIII): http://boolefund.com/g-iii-apparel-group-ltd-giii/
Hummingbird Resources Plc. (HUMRF): http://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): http://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): http://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): http://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): http://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): http://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): http://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): http://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): http://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): http://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): http://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): http://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): http://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): http://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): http://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): http://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): http://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): http://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): http://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Helix Energy Solutions Group, Inc. (HLX). Helix Energy is an international offshore energy services company that provides specialty services to the offshore energy industry, with a
focus on well intervention and robotics operations. Their services cover the lifecycle of an offshore oil or gas field. Their services also include
subsea cable burial and seabed clearing services for the offshore renewable energy sector.
HLX has a market cap of $618.7 million, with $259.3 million in cash and $522.1 million in debt. The stock price is $4.12.
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First we screen for cheapness based on five metrics. Here are the numbers for Helix Energy:
- EV/EBITDA = 4.45
- P/E = 9.23
- P/B = 0.36
- P/CF = 4.47
- P/S = 0.83
Next we calculate the Piotroski F-Score, which is a measure of the fundamental strength of the company. For more on the Piostroski F-Score, see my blog post here: http://boolefund.com/piotroski-f-score/
HLX has a Piotroski F-Score of 6. (The best score possible is 9, while the worst score is 0.) This is decent.
Then we rank the company based on low debt, high insider ownership, and shareholder yield.
We measure debt levels by looking at total liabilities (TL) to total assets (TA). HLX has TL/TA of 31.8%, which is good.
Insider ownership is important because that means that the people running the company have interests that are aligned with the interests of other shareholders. At HLX, insiders own 6.1% of the shares, which is OK.
Shareholder yield is the dividend yield plus the buyback yield. At HLX, the dividend yield is zero. But the company, rather than buying back shares, has issued some shares (equal to 1% of shares outstanding over the past year). So shareholder yield is slightly negative.
Each component of the ranking has a different weight. The overall combined ranking of HLX places it in the top 50 stocks on our screen, or the top 2% of the more than two thousand companies we ranked.
The final step is to study the company’s financial statements, presentations, and quarterly conference calls to (i) check for non-recurring items, hidden liabilities, and bad accounting; (ii) estimate intrinsic value—how much the business is worth—using scenarios for low, mid, and high cases.
See HLX’s most recent investor presentation (December 7, 2020): https://helixenergysolutionsgroupinc.gcs-web.com/static-files/e91eec9a-9637-4aae-ac62-4484dff0c1b5
Intrinsic value scenarios:
- Low case: The company is probably not worth much less than half of book value of $11.36 a share. That works out to $5.68, which is 37% higher than today’s $4.12.
- Mid case: Helix Energy is likely worth at least book value of $11.36 a share. That’s 175% higher than today’s $4.12.
- High case: EBITDA may reach $300 million in a full recovery. With an EV/EBITDA of 10, the stock would be worth $18.23, which is over 340% higher than today’s $4.12.
BOOLE MICROCAP FUND
An equal weighted group of micro caps generally far outperforms an equal weighted (or cap-weighted) group of larger stocks over time. See the historical chart here: http://boolefund.com/best-performers-microcap-stocks/
This outperformance increases significantly by focusing on cheap micro caps. Performance can be further boosted by isolating cheap microcap companies that show improving fundamentals. We rank microcap stocks based on these and similar criteria.
There are roughly 10-20 positions in the portfolio. The size of each position is determined by its rank. Typically the largest position is 15-20% (at cost), while the average position is 8-10% (at cost). Positions are held for 3 to 5 years unless a stock approaches intrinsic value sooner or an error has been discovered.
The mission of the Boole Fund is to outperform the S&P 500 Index by at least 5% per year (net of fees) over 5-year periods. We also aim to outpace the Russell Microcap Index by at least 2% per year (net). The Boole Fund has low fees.
If you are interested in finding out more, please e-mail me or leave a comment.
My e-mail: firstname.lastname@example.org
Disclosures: Past performance is not a guarantee or a reliable indicator of future results. All investments contain risk and may lose value. This material is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of Boole Capital, LLC.