A Rell Update

The weekly rant this week is a short one (as I prepare for my FMRP exam). It is an update on my previous rant on Richardson Electronics (RELL). As mention in that rant there was a string of news that was coming out of RELL over the last few days. There was their first quarter FY16 financials and their earnings call.

My thoughts so far…

My interest in RELL has declined quite significantly. Although the company announced a dividend of $0.06 (reflecting a annualised yield of 4%) and repurchased 567,213 shares the fundamental picture has changed significantly.

My primary thesis for a potential investment in this business was on the back of the cash and investments it held on its balance sheet. It was a pure asset play with the potential of transforming into a fast grower (these are Peter Lynch terms which I hope to write a rant about on what I learned in his book some day…).

So what did I uncover in the latest financial report? Deterioration in the cash (current balance of $68.4m), short term investments (current balance of $6.34m) and long term investments (current balance of $10.5m). All up the total “cash” position was $85.8m and even with the share repurchases this implies a share price of $6.42.

The RELL shares were trading in a range of $6.16-$6.5 after the earnings announcement. The share price rose quickly to $6.5 and ended the day trading at $6.22 representing a decent 3.67% appreciation. At the current share price of $6.22 does excite me enough, nor offers an adequate margin of safety for a average to below average business.

Do I regret not investing a small parcel before the announcement? Slightly but not really, I think I’ll pass this one up for now…

Steven

  • Bronson

    Hey Stevo,

    I am curious as to why your valuation wasnt based on the Net Asset instead?

    • Steven Nguyen Choices

      Hey B,

      Thanks for reading and commenting!

      I didn’t based my valuation on Net Asset because I wanted a larger margin of safety given the low market cap and weak operating performance of the business. Including the value of the properties that RELL owns is perfectly valid as well. It would provide a higher valuation and could potentially be a good asset play.

      Interestingly enough RELL plummeted back to $5.93 makes it an attractive short-medium term play (no more than 2-3 years I would say). Something I’m still contemplating…so I’m keeping this one on my watch list.