(Image: Zen Buddha Silence, by Marilyn Barbone)
March 7, 2021
We continue with examples of Boole’s quantitative investment process in action.
Recently, we looked at the following companies:
ADF Group, Inc. (DRX.T): http://boolefund.com/adf-group-inc-drx-t/
Thermal Energy International Inc. (TMGEF): http://boolefund.com/thermal-energy-international-inc-tmgef/
Helix Energy Solutions Group, Inc. (HLX): http://boolefund.com/helix-energy-solutions-group-inc-hlx/
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 The Singing Machine Company (SMDM). From the company’s website: “Creating joy through music is our driving force. We believe in the power of a song. And that force is what has kept us going for over three decades. Based in the U.S., Singing Machine® is the worldwide leader in consumer karaoke products. The first to provide karaoke systems for home entertainment in the United States, we offer the industry’s widest line of karaoke products, allowing consumers to find the best machine for them! Singing Machine is the most recognized brand in karaoke and our products incorporate the latest technology for singing practice, music listening, entertainment and social sharing.”
SMDM has a market cap of $18.7 million. The stock price is $0.48.
First we screen for cheapness based on five metrics. Here are the numbers for The Singing Machine Company:
- EV/EBITDA = 4.86
- P/E = 4.16
- P/B = 2.05
- P/CF = 4.17
- P/S = 0.33
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/
SMDM has a Piotroski F-Score of 8. (The best score possible is 9, while the worst score is 0.) This is very good.
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). The Singing Machine Company has TL/TA of 59.2%, 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 The Singing Machine Company, insiders own 68.5% of the shares.
Shareholder yield is the dividend yield plus the buyback yield. At SMDM, the dividend yield is zero and the buyback yield is zero. So shareholder yield is zero.
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 SMDM’s most recent quarterly report (for the quarter ended December 31, 2020): https://cdn.shopify.com/s/files/1/1937/9279/files/Singing_Machine_Announces_22_Increase_in_Net_Sales_in_Third_Quarter_2021_Earnings_Report.pdf?v=1613761632
Intrinsic value scenarios:
- Low case: The company may be worth book value, which is $0.23 per share. That’s 51% lower than today’s $0.48.
- Mid case: SMDM has an EBITDA of $4.5 million and is probably worth an EV/EBITDA of 10. That works out to $1.07 a share, which is over 120% higher than today’s $0.48.
- High case: EBITDA may reach $6 million. With an EV/EBITDA of 10, the company would be worth $1.46 per share, which is over 200% higher than today’s $0.48.
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.