Last week I teased my single favorite stock, promising I would reveal it later. Today is the day. While I usually weight my portfolios equally, occasionally I find a stock where the valuation and circumstances are so compelling I own a larger position.
Right now, Volt Information Sciences (VISI) is that stock.
Volt is a staffing company that provides services to the high-tech industry as well as IT solutions and database marketing. The company has been around since 1950 and is very well regarded in the industry. The client list includes plenty of Fortune 100 companies, including tech leaders such as Google (GOOG) and Apple (AAPL).
What’s more, VISI appears to be one of the cheapest stocks out there right now.
The key phrase here is “appears to be” — Volt has been involved in an accounting restatement since 2009 and has not filed fully audited financial with the SEC since then. But the company has filed regular quarterly updates; if we take the last report and build forward, VISI stock is trading at what should be less than 60% of tangible book value and about 2.5 times EBITDA. Cash balances are somewhere around $70 million, and Volt has negligible debt. The restatement process has kept the value from being recognized (and has also cost the company a great deal of money).
I believe we are within a few months of all the accounting statements being filed with the SEC. We do know that PNC (PNC) manages a securitization program for Volt; the bank and has been signing off on the financials on a regular basis to grant extensions of the program. If there were an irregularity that would alter my assumptions in a material way, then either PNC would have killed the deal or such an issue would have appeared in the regular updates. Volt also has a new CEO and CFO in place, and they’re working to get the restatements done and filed so we can all put this in the past.
The founding family controls more than 35% of VISI stock and wields a lot of control over the company — and frankly, it took them a long time to realize that their financial methods and systems simply were not up to par. This process has led to a delisting from the NYSE and an expensive process of correcting the errors they made.
But — and this is a big “but” — the financial restatements do not appear to be material to the business, and the stock is very cheap. Once this mess is cleaned up, I believe VISI stock will be relisted on the NYSE and trade in line with other staffing companies. Such a move would mean a stock price more than double where it sits now. What’s more, Volt will also benefit from a strengthening economy over the next few years.
This beaten-down stock is about to launch to new heights — and it’s not too late to get on board for the ride. VISI is a very cheap stock with a potential catalyst for large gains in the next year.
At the time of publication, Melvin was long VISI.
