Tuesday, September 27, 2016

SIMA is the cheapest stock I know

I love 10 minute stock decisions.  Today's question is are you into incredibly cheap, dark stocks or are you not.  Let's start with a game of price that stock.  You tell me what it's worth:
  • revenue: $20M in 2015 vs $20.4M in 2014 vs $20.4M in 2013
  • cash: $12.5M vs 10.6 vs 8.8
  • securities: $1M vs 0.7 vs 0.3
  • net income: $2.1M vs 2 vs 2.9
  • BV: $21.9M vs 19.8 vs 17.8
  • EPS: $0.62 vs 0.59 vs 0.85
  • no debt
  • 3.4M shares common
  • no preferred or warrants
This company has a BV of $6.5, EPS $0.62, cash + securities $4 per share.  They deregistered from the SEC and trade on the grey market, haven't filed a report in the public eye since 2002.  An audited annual report is provided to shareholders only.  Their entire $2M annual earnings is going straight into the bank.

I'll go with a value of $8 - $10 per share based on the numbers.  Latest price is $0.65 so we have an upside to fair value of ~1300%.  Market cap = $2.3M.  Stable, profitable company with a growing BV trading at:

  • P/E = 1.1
  • P/cash = 0.18
  • P/BV = 0.1
That is all you need to know.  Probably took less than 10 minutes.

The company is Sonics and Materials (SIMA) and they've been in business since 1969. They will continue doing what they do.  Founder is the majority shareholder and still running the show. From the 2002 10KSB:
Sonics & Materials, Inc. (the "Company" or "Sonics") designs, manufactures and sells (i) ultrasonic bonding equipment for the welding, joining and fastening of thermoplastic components, textiles and other synthetic materials, and (ii) ultrasonic liquid processors for dispersing, blending, cleaning, degassing, atomizing and reducing particles as well as expediting chemical reactions. To further address the needs of its customers, the Company also manufactures a spin welder and a vibration welder, both of which are used for the bonding of thermoplastic components. 
The Company was incorporated in New Jersey in April 1969, and was reincorporated in Delaware in October 1978. Robert S. Soloff, its chairman, president and founder, invented the ultrasonic plastic welding process early in his career. He has been granted nine patents in the field of power ultrasonics and is considered to be a pioneer in the application of ultrasonic technology to industrial processes. Mr. Soloff has also been issued two patents in the field of vibration welding.
I don't have much opinion on the business or market. Seems fine to me. Just look at those numbers

So from here we wait.  There is no catalyst in sight. Some day value will be realized.  The problem is no one knows SIMA exists. OTCmarkets has SIMA on the caveat emptor list so some brokerages, like Fidelity and OptionsHouse, will not let you buy shares. 

What should happen is the company buys out all minority shareholders. They have a growing cash pile. Buy us out for a fair price

Maybe management will decide to sell the company. The founder is now 77 years old. He owned 70% of the company as of the latest proxy in 2001. But his daughter Lauren Soloff is an EVP who owned 7% so maybe it'll just stay in the family.  I don't know current inside ownership as the annual report does not discuss this.

added 9/29/2016
Just wanted to add in a long range chart on this one after a reader brought up the point of why would anyone be selling this.  The saddest thing about this situation is those who are selling probably have no idea what they hold.  That or they are just sick of waiting.  SIMA is at the same level now as 17 years ago.  The company went dark in 2002 while losing money, with more debt than cash, and haven't communicated with shareholders since.  They produce a report but unless shareholders call to ask I don't think anyone sees it.  They don't put out press releases.  It's criminal what they've done to shareholders.  While in the darkness they've turned around, paid off the debt, and stockpiled cash.  But the old time shareholders have no idea.  They just see this stock sitting in their account doing nothing for 15 years and wonder to themselves if the company still even exists.  




--Dan

Disclosure: long SIMA

24 comments:

  1. How on earth did you find this?

    How much volume is there each day? Like how long did it take you to get filled?

    I just looked at the stock chart. It was at $0.1 only 3 months ago! That is ridiculous!!!

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    1. A better investor than I shared this this company with me.

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    2. does he have a blog or twitter you'd like to share?

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  2. Oh forgot to ask, did you sort out your broker problems?? What was the solution?

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  3. Thanks for posting? What broker did you use?

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  4. There is no volume. Took me a half year to get any shares at all. Months go by without a trade. This stock is insanely cheap and super volatile.

    Yes I have finally sorted out my broker problems and will write up a post on that soon. What a hassle. Ended up transferring my OptionsHouse accounts over to T Rowe Price and I'll be moving the non-401k Fidelity accounts as well. Quite a few brokers won't allow you to buy this because it's on the grey market.

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    1. Yea Fidelity and Interactive Brokers won't let you buy this one, but Schwab will I believe. Really frustrating. Fidelity won't let you buy NORSB due to them saying it is a shady company, but they will will you buy NORSA, the same company. This stuff is getting really annoying.

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  5. How did you get the financials for the company if the last filing is 2001??

    Glad you sorted out the broker problems.

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    1. The company produces annual reports every year, they just don't file them anywhere. Similar to MRCR, ADDC, COMX. 2002 is the last time they submitted a report to the SEC.

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    2. I'm new to these micro caps.

      Do they have no legal responsibility to file them then? Is this due to market cap size or <300 shareholders?

      So have you estimated your numbers above based on 2002 filings? What if all the cash has gone?

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  6. I have not estimated anything. The numbers I've written are directly from the company issued annual report.

    When a company deregisters from the SEC they are no longer legally required to send out reports. These are called dark companies. Has nothing to do with market cap. A company can elect to deregister if they have less that 300 shareholders of record. It's actually more than 300 for banks and financials but you get the idea

    Some dark companies continue producing reports because they care about their shareholders. Some reports absolutely nothing. Companies can continue filing reports with otcmarkets for a fee. Some companies just post reports on their website. Some mail out a paper copy only. Some do nothing

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  7. Interactive Brokers, doesn't let you trade this. No data comes up.

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  8. Please note that your numbers are off. AS of March 31st their cash value which includes
    marketable securities equals $4.67 as of March 31st2016 Their year ended June 30th and it is easy to assume that their cash value is now close to $5.00 and now that the Sept Q is over we can easily assume that that number is even higher. The book value at the end of the March Q was $6.85 , again We have not seen the year end number and now that the first q is over we are easily over $7.00
    The other interesting thing that you will see on the income statement is the fact that for the nine months the company spent $1.5 million on research and development .
    Development for the future.

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    Replies
    1. Thanks for the update. My numbers are from the latest annual ending June 30, 2015

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  9. Scottrade and TDAmeritrade both allow trading in this stock

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  10. I called and requested financials which will be mailed to me.(not sure why they cant just email them)

    Anyway, are the reports audited?

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  11. From the balance sheet March 31st 2016 ( 9 months ending fiscal yr) cash $14.6 million and Marketable securities $1.3 million = $15.7 million in actual cash and 3.4 million shares out $4.61 in cash. We are already 6 months after the fact so it is very easy to conclude that cash is easily over $5.00 with a growing book value

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  12. Confirmed. IB refuses to trade this for me. And still you can buy negative interest rate bond paper. The world is insane.

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    1. Sorry to hear that. Unfortunately the overall trend in the industry is moving against us. These cheap little stocks are just too 'risky'...

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  13. post updated Sept 29 to add a chart and short explanation of why someone might be selling this.

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  14. As mentioned prior YOU can buy all you want using Scottrade and TDAmeritrade i know for certain because i have purchase this stock on there platform Scottrade is $7 + 1.2 of 1% if under $1.00 and TD is like 8 dollars flat.
    This stock is not a value trap because something will happen sooner than later- either a buyout or merger. The owner is getting older and he most like retire and sell the company. As mentioned the book is close to $7 thru Sept 2016 I have the 9 months and this company just makes money. They could also declare a cash dividend because the cash i just sitting there. Management owns most of the stock anyway. This truly is a stock that you buy and put away and one day you will instantly be up 600-700%
    This stock is not for everyone because it demand patience. Harvard Business School would surely use this as the perfect example on how to run a business- no debt, huge cash horde, spending money on r&d $1h.5 million ending the 9 months March 31, 2016. For the year ending June 30th they will show another .70 net income per share. Just about the price of the stock. Cheapest stock in the world-

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    Replies
    1. I tried to open a TDAmeritrade account but appearently you'll need to send snail mail to the US for opening an account and send slow and expensive bank transfers to fund the account. Very frustrating indeed. Do they want non-US customers?

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