After having a few days to think on the 15 pages that make up the most recent International Baler (IBAL) 10Q I am just as happy with the results as I was when I saw them yesterday. I was happy to see that the company had better results than I had originally expected.
The day after the release, I was surprised that no shares changed hands, and the bid/ask spread stayed roughly the same. Regardless, here are some brief thoughts.
Income: The company earned 2 cents a share; which, if extrapolated to 4 quarters, gives the company a super reasonable P/E of ~7 1/2. I will be absolutely shocked if the company can get to fiscal 2008 revenue/earnings, but 2007 seems reachable in the coming quarters; if that happens, we can expect a super low P/E of 5; it seems irrational for the market to value the company in such a way, especially in the low interest rate environment that we are in.
Cash Flow: While cash flow was negative, it was offset by increased inventory and accounts receivable levels over the last quarter. I view these 2 increases as close to money in the bank, and a show that revenues in the next quarter will be bolstered by the increased in inventory levels.
Balance Sheet: The company presently has cash of $1.25 million against a market cap of $2.9 million. In addition, when comparing customer deposits to the last quarter, they swelled by over 400%; from $107K to $445K this is a very good trend for the company, and is certainly a symptom of the the recovering economy. It sheds some light on coming revenues; which will undoubtedly be healthy, especially if the economy continues to improve or even putter along.
One of my favorite facts about the company is that it has a balance sheet that could take years of record low revenues; such as the ones that occurred in March of last year, when the bottom of the world fell out.
Sarbanes Oxley Risk: Here (thanks to Alex for passing the article along to me) and here, we see that Rep. Barney Frank expects for small public companies to remain without some of the burdensome costs of Sarbanes Oxley. I suppose that this makes me feel better since almost all of my stock holdings are in nano-caps; but, even if lawmakers would hurt them, I would imagine that companies would implement some form of reverse share split, get below 300 shareholders, quit filing with the SEC, trade on the Pink Sheets, and ultimately save some money.
Regardless of what happens with the legislation, it probably doesn't matter much, either way; I can't imagine that OTC investors would be scared away by their stocks trading on the Pink Sheets. Furthermore, if legislation doesn't force tougher audit laws, then we are essentially where we are now. The only foreseeable result of this that would piss me off would be if the company was taken private with some super low ball offer that values future cash flows at nothing, much akin to what the Steiner Family attempted to do with Dry Clean USA (now, Envirostar). I doubt that this would be able to happen though, since the company would probably lose it's NOL's.
Frankly, this company offers a TON of upside with minimal downside. It is likely, in the event that the company would liquidate, it would end up returning money to shareholders. While I don't want for or think the company will liquidate, it is a way of seeing the safety in the investment. In light of there being no litigation against the company, a chunk of cash, adjustable SG&A, real estate on the books, insider buying, and owners/operators/board members that are business savvy, I reiterate what I have said in the past: I see no reason why this company is not trading at book value. This company is exactly the sort of thing that Warren Buffett would have invested in back in the partnership days.
For those of you that want some more info on balers check out the stuff here.
Disclosure: I am long shares of IBAL. This is not investment advice. Do your own research before doing anything related to anything I talk or even so much as think about.