Just over a year ago, InfoSonics was discussed on this site as a potential value investment. The stock promptly rose in the ensuing couple of months, but then got absolutely annihilated in the 3rd quarter of last year when double-dip and sovereign default fears reigned over the market. The stock has now bounced back, and while it may still be undervalued, value investors may want to take some off the table in order to pursue today's best opportunities.
The price action in InfoSonics over the last year reinforces a couple of lessons for value investors. First, be greedy when others are fearful. Shares of IFON fell from $1.12 earlier in 2011 to just $0.52 by October without much of a change in the company's business conditions (the company had positive cash flow but slightly negative earnings over this period). This kind of volatility scares most investors, but should excite the value investor.
The second lesson is very simple: buy liquid assets when they are cheap and not being eroded. InfoSonics had net current assets of $19 million in October of 2011, and yet the entire company could be purchased for less than $8 million!
The company remains cheap on this basis even today, but the easiest, lowest-risk returns have now been achieved. There are now companies which much larger discounts (one example here) that investors may want to check out instead.
* Inspiration for the title thanks to a comment from loyal reader aagold
Disclosure: No position
This article was written by Saj Karsan of Barel Karsan. If you enjoyed this article, please consider subscribing to the feed.