- rev $2.01
- book value $0.76
- EPS $0.10
When I value a stock I generally take the higher of: 10x earnings, 1x revenue, 1x book value. With the latest numbers we would have a value of $1-$2 using that method. 2x - 5x the current share price.
You always have to consider extra items and in this case that's the real estate. They've owned their building for decades and it's fully depreciated. I'm going to go with a real estate value of $3M based on these two excellent write-ups at Elementary Value and Mesaba Range Value.
Before we get to a full valuation you have to know some history so here's 15 years of numbers. At least the most important ones. All I want to highlight here is the operating company is stable and alive. It's not dying. (note the 2021 earnings exclude PPP forgiveness and book value is after PPP forgiveness).
MFCO makes electronic hardware filters. Been doing it for decades. I don't know much about the industry other than to say the need for hardware filters is not going away. I don't think the world is going backwards anytime soon. The website advertizes some new 5G filters which sounds exciting!
A description from the recently posted annual report:
"Microwave Filter Company, Inc. designs, develops, manufactures and sells electronic filters, both for radio and microwave frequencies, to help process signal distribution and to prevent unwanted signals from disrupting transmit or receive operations. Markets served include cable television, television and radio broadcast, satellite broadcast, mobile radio and commercial and defense electronics."
I'll say the operating business is worth $3-4M and then we have the real estate for another $3M. Total stock value of $6-7M or ~$2.50 per share. Current stock price is $0.43. Cheap with a capital C.
But you have to ask yourself why am I being given this gift. Where is the disconnect?
In this case it's the SEC. Check out this chart. The stock has been cut in half the past few months since the new SEC rule went into place. MFCO unfortunately did not comply with the new rule and was dropped to the Expert Market leaving few brokerages allowing trades. I'd be buying more right now if I could.
What's interesting is the change. I'm always on the lookout for change. A week ago the company filed their 2021 annual. 4 days later the 2020 annual and most importantly a change from Expert Market to the OTC Markets Pink Limited Information Tier!
That's right, the stock is going to be tradeable again. I expect the stock to be back closer to a dollar once the brokerages allow trading. Question is when will that happen. I don't know what the lag time is between otcmarkets tier change and online brokerages recognizing that status. Schwab at least still doesn't let me buy even though MFCO has met the SEC rule guidelines for a few days now.
I own the stock for two reasons: it's cheap and potential is high. I want big stock movement and all the signs are there. The stock is illiquid with only 2.6M shares out. Near zero debt, no warrants, no preferred, super clean capital structure. The company is not going anywhere. Share count stable for many years. No way the stock is worth less than 3x the current price.
But really all you need to know is here in this chart. We are at the bottom. It's low and forgotten and lonely. Look at that spike...it could happen again
disclosure: long MFCO