We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
Myomo Inc. (MYO): https://boolefund.com/myomo-inc-myo/
The Singing Machine Company (SMDM): https://boolefund.com/singing-machine-company-smdm/
ADF Group, Inc. (DRX.T): https://boolefund.com/adf-group-inc-drx-t/
Thermal Energy International Inc. (TMGEF): https://boolefund.com/thermal-energy-international-inc-tmgef/
Helix Energy Solutions Group, Inc. (HLX): https://boolefund.com/helix-energy-solutions-group-inc-hlx/
Five Star Senior Living Inc. (FVE): https://boolefund.com/five-star-senior-living-inc-fve/
North American Construction Group Ltd. (NOA): https://boolefund.com/north-american-construction-group-ltd-noa/
Vera Bradley, Inc. (VRA): https://boolefund.com/vera-bradley-inc-vra/
Lazydays Holdings, Inc. (LAZY): https://boolefund.com/lazydays-holdings-inc-lazy/
Karora Resources Inc. (KRRGF): https://boolefund.com/karora-resources-inc-krrgf/
Diamond S Shipping Inc. (DSSI): https://boolefund.com/diamond-s-shipping-inc-dssi/
DHI Group, Inc. (DHX): https://boolefund.com/dhi-group-inc-dhx/
Saga Communications Inc. (SGA): https://boolefund.com/saga-communications-inc-sga/
Northwest Pipe Co. (NWPX): https://boolefund.com/northwest-pipe-co-nwpx/
Smart Sand Inc. (SND): https://boolefund.com/smart-sand-inc-snd/
Terravest Industries Inc. (TVK.TO): https://boolefund.com/terravest-industries-inc-tvk/
LGL Group, Inc. (LGL): https://boolefund.com/lgl-group-inc-lgl/
G-III Apparel Group, Ltd. (GIII): https://boolefund.com/g-iii-apparel-group-ltd-giii/
Hummingbird Resources Plc. (HUMRF): https://boolefund.com/hummingbird-resources-plc-humrf/
Micropac Industries, Inc. (MPAD): https://boolefund.com/micropac-industries-inc-mpad/
Barrett Business Services, Inc. (BBSI): https://boolefund.com/barrett-business-services-inc-bbsi/
Delta Apparel, Inc. (DLA): https://boolefund.com/delta-apparel-inc-dla/
AdvanSix, Inc. (ASIX): https://boolefund.com/advansix-inc-asix/
Universal Technical Institute (UTI): https://boolefund.com/universal-technical-institute-uti/
Burnham Holdings Inc (BURCA): https://boolefund.com/burnham-holdings-inc-burca/
Select Interior Concepts (SIC): https://boolefund.com/select-interior-concepts-sic/
Manitowoc (MTW): https://boolefund.com/manitowoc-mtw/
Ciner Resources LP (CINR): https://boolefund.com/ciner-resources-lp-cinr/
Global Ship Lease (GSL): https://boolefund.com/global-ship-lease-gsl/
Alico, Inc. (ALCO): https://boolefund.com/alico-inc-alco/
Genco Shipping (GNK): https://boolefund.com/genco-shipping-gnk/
SEACOR Marine (SMHI): https://boolefund.com/seacor-marine-smhi/
Tidewater (TDW): https://boolefund.com/tidewater-tdw/
TravelCenters of America (TA): https://boolefund.com/travelcenters-america-ta/
Teekay Tankers (TNK): https://boolefund.com/teekay-tankers-tnk/
Ranger Energy Services (RNGR): https://boolefund.com/ranger-energy-services-rngr/
Macro Enterprises (Canada: MCR.V): https://boolefund.com/macro-enterprises-mcr-v/
This week, we are going to look at Danavation (DVN.CN). Do you know the little labels with price and product description that are placed on the edge of the shelf underneath the product in stores? Danavation makes a digital version of those labels.
Danavation has a market cap of $41.9 million. The stock price is $0.41. (All values are in Canadian dollars.)
Step One
First we screen for cheapness based on five metrics. Here are the numbers for Danavation:
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- EV/EBITDA = 2.87
- P/E = 6.25
- P/B = 3.42
- P/CF = 3.13
- P/S = 0.63
(These figures are based on estimated revenue of $67 million in a couple of years.)
Step Two
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: https://boolefund.com/piotroski-f-score/
Danavation has a Piotroski F-Score of 7. (The best score possible is 9, while the worst score is 0.) This is good.
Step Three
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). Danavation has TL/TA of 100%, which is a bit high.
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 Danavation, insiders own 40% of the shares, which is excellent.
Shareholder yield is the dividend yield plus the buyback yield. At Danavation, the dividend yield is zero and the buyback yield is negative due to the issuance of warrants and stocks options. So shareholder yield is negative.
Step Four
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 Danavation’s most recent investor presentation (March, 2021): https://danavation.com/wp-content/uploads/2021/03/March-1-2021-Danavation-Investor-Deck-FINAL.pdf
Intrinsic value scenarios:
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- Low case: EBITDA may only be $3 million. The company may be worth an EV/EBITDA of 8. That works out to $0.20 a share, which is 50% lower than today’s $0.41.
- Mid case: Normalized EBITDA is at least $13 million. With an EV/EBITDA of 10, the stock would be worth $1.24 per share, which is over 200% higher than today’s $0.41.
- High case: EBITDA may reach $20 million. With an EV/EBITDA of 10, the company would be worth $1.92 per share, which is about 370% higher than today’s $0.41.
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: https://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 approachesintrinsic 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: jb@boolefund.com
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.