Sunday, August 28

Too Cheap to Ignore: Schmitt Industries (SMIT)



Schmitt Industries (SMIT) designs, manufactures and sells test measurement products worldwide. Focus is industrial and commercial applications; grinding process monitoring, control surface finish, micro roughness measurement, laser-based non-contact dimensional, distance measurement lasers and remote propane tank level monitoring.




 






























SMIT(Schmitt Industries) may interest mean reversion, asset cheap, nano cap investors. The enterprise value is 3.38M or $1.13 EV per share with a market capitalization of 4.34M. But, it was Friday’s drop to $1.41, a 52 week low that had me purchasing a small position. The close price was $1.45.


SMIT's stocks performance trades significantly below its industry peers coupled with lower valuations for EV to sales, gross profit, book value.



Positives:

No long term debt with shares outstanding constant at 2.995M since 2012.Historical and industry relative low valuations. The TTM gross profits is greater than current enterprise value; EV/GP = .69, EV/Revenue = .29, P/TB = .60 with an enterprise per share of $1.13. Further, August 3, 2016 Schmitt Industries announced the listing of a portion of real estate holdings. http://yhoo.it/2bKf5n4

“We have significant free and clear real estate holdings for a company our size,” commented David M. Hudson, Chief Executive Officer and President of Schmitt Industries. “The Company currently owns and operates from multiple adjacent buildings in Portland, Oregon. Given the demand and valuations that the Portland commercial real estate market is experiencing, we believe it is an appropriate time to explore the sale of some of these assets,”
With SMIT's tiny 3.38 million enterprise value any sale could have a material positive impact. 

Insider ownership is 30%. The only 2016 insider activity, a purchase on 7/25/2016 for 1,000 shares at $1.91



































































The company is financially strong! Although, SMIT did post a low and declining F score of 3. This low F score impacted by an increase in losses, slower turnover of assets, slight reduction of current ratio, and a reduced gross margin. These negatives offset by no debt change, no change in shares outstanding, and quality expense accruals. A score of 3 is negative. But, recognize the score was impacted by the small negative changes in a existing strong current ratio, asset turnover, and losses.
The continued decline in gross margins looks problematic coupled with the negative foreign exchange from the strong dollar. My guess is they don’t return to profitability this year. Their financial strength and historical conservative control of expenses will carry them until profitability. 

Long SMIT

1 comment:

Phil said...

PORTLAND, Ore., Aug. 03, 2016 (GLOBE NEWSWIRE) -- Schmitt Industries, Inc. (NASDAQ:SMIT) (the "Company") today announced that it has listed for sale one of its parcels of property located at 2765 NW Nicolai in Portland, Oregon.

Here is a link to some marketing materials looks like they are asking $2.7m. https://is.gd/j1ePca
So 2/3 of the market cap, but it seems like they burned about 1 mil in cash over the past year. I wonder what is going on?