Since the time when Alpha Pro Tech (APT) was discussed on this site as a potential value investment about a year ago, its market cap has fluctuated between $20 million and $35 million, offering excellent opportunities for value investors to earn an outstanding rate of return. Downside protection was also strong, as the company was a profitable net-net for most of this period! As such, Alpha Pro Tech becomes the latest stock to join this site's Value In Action page.
Even as the company's market value fluctuated considerably, the company's book value remained steady at $35 million. The company's profits over this period were used to fund share buybacks at attractive prices. Value investors were able to buy a profitable, cash-rich company with no debt that was buying back shares! The odds appear to have been definitively on the side of the investor in this one.
The market appeared to be spooked by the company's near-term earnings situation (Alpha was dropped by one of its distributors and so had to pick up a new one; it was also affected by sharply falling sales in 2011 of its protective masks, which rose in 2010 due to flu fears). Since the market focuses on short-term earnings, long-term investors can take advantage.
In this case, investors were able to buy into a company at a fraction of its liquid assets net all of its liabilities. Furthermore, investors were buying into a conservatively-capitalized company with a capable management team that has consistently managed to generate decent margins.
As Mohnish Pabrai would say: "Heads, I win (as management again navigates through some short-term earnings shocks); tails, I don't lose (as downside risk was minimal given the discount to net current assets)"
Even as the company's market value fluctuated considerably, the company's book value remained steady at $35 million. The company's profits over this period were used to fund share buybacks at attractive prices. Value investors were able to buy a profitable, cash-rich company with no debt that was buying back shares! The odds appear to have been definitively on the side of the investor in this one.
The market appeared to be spooked by the company's near-term earnings situation (Alpha was dropped by one of its distributors and so had to pick up a new one; it was also affected by sharply falling sales in 2011 of its protective masks, which rose in 2010 due to flu fears). Since the market focuses on short-term earnings, long-term investors can take advantage.
In this case, investors were able to buy into a company at a fraction of its liquid assets net all of its liabilities. Furthermore, investors were buying into a conservatively-capitalized company with a capable management team that has consistently managed to generate decent margins.
As Mohnish Pabrai would say: "Heads, I win (as management again navigates through some short-term earnings shocks); tails, I don't lose (as downside risk was minimal given the discount to net current assets)"