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New Turnaround Stock to Buy: ModusLink Global – MLNK

Improving trends make MLNK a rising star

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The company’s first-quarter earnings release showed that the cost cutting and restructuring efforts were beginning to positively impact results. Revenues declined 2.9% to $191.4 million, reflecting in part the sale of the company’s Tech for Less subsidiary in January 2013.

However, an improved revenue mix helped drive an increase in gross margins to 11.5% from 9.5%, while improved operating efficiencies resulted in a 25% decline in selling, general and administrative (SG&A) expenses to $18.1 million. Excluding extraordinary items, adjusted EBITDA increased to $8.5 million from $2.1 million. MLNK earned a profit of 1 cent a share, compared to a loss of 24 cents a share in the previous period.

MLNK also boasts a strong balance sheet, with total cash of $67 million (roughly $1.30 a share) and no long-term debt. Total current assets net of all long-term liabilities is $110 million, or $2.15 a share. If management can maintain their recent profitability and further advance this liquidity, the stock price should be supported and allow the company to possibly enhance shareholder value through a dividend or a buyback plan.

MLNK has soared since mid-December, however, I believe it has catalysts in place to push the shares higher. The company’s cost structure has been reduced significantly, and revenues are stabilizing. Restructuring expenses was just $979,000 last quarter, and management believes they can have the current restructuring liability of $2 million paid off by fiscal 2015. Also, I believe the new management and ownership structure will help keep this turnaround story moving.  

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