One of the cheapest stocks in our Small & Micro Cap Stock Screener is TSR Inc (NASDAQ:TSRI).
TSR, Inc. (TSR) is engaged in providing contract computer programming services to its customers. The Company provides its customers with technical computer personnel. It provides its customers with technical computer personnel to supplement their in-house information technology (IT) capabilities. The Company offers staffing capabilities in the areas of mainframe and mid-range computer operations, personal computers and client-server support, Internet and e-commerce operations, voice and data communications (including local and wide area networks), and help desk support. It provides services on day-to-day operations, special projects and on short-term or long-term basis. It also offers various services to other companies in various sectors, such as insurance, pharmaceutical and biotechnology, publishing and new media, financial services and project utilities. It provides contract computer programming services in the New York metropolitan area, New England and the Mid-Atlantic region.
A quick look at TSR’s share price history over the past twelve months shows that the price is up 32%, but here’s why the company still remains undervalued.
The following data is from the company’s latest financial statements, dated February 2017.
The company’s latest balance sheet shows that TSR has $6 Million in total cash and cash equivalents consisting of $5 Million in cash and $1 Million in short-term investments. Further down the balance sheet we can see that the company has zero debt. Therefore, TSR has a net cash position of $6 Million (cash minus debt).
If we consider that TSR currently has a market cap of $10 Million, when we subtract the cash totaling $6 Million that equates to an Enterprise Value of $4 Million.
If we move over to the company’s latest income statements we can see that TSR had $1 Million in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 4, or 4 times operating earnings. That places TSR squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that TSR generated trailing twelve month operating cash flow of $1 Million and had $0 Million in Capex. That equates to $1 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 25%.
TSR’s free cash flow of $1 Million (ttm) has been consistent for the past couple of years and the company’s current revenues of $61 Million (ttm) are inline with the all time highs recorded in FY2016 but what seems to get overlooked is that TSR currently has $13.43 Million in total current assets and $3.89 Million in total liabilities. If we subtract the total liabilities ($3.89 Million) from the total current assets ($13.43 Million) that equates to $9.54 Million in net current assets. And, if we divide the net current assets by the total number of outstanding shares (1.96 Million) that equates to $4.87 per share. When we consider that the company’s current share price is $4.85, that means TSR is currently trading at a discount to its net current asset value.
Lastly, TSR reported total equity of $9.638 Million for the quarter ending February 2017, if we divide the total equity by the number of outstanding shares (1.96 Million) we get a tangible book value per share of $4.92, and with the company’s current share price at $4.85, that means TSR is also trading at a discount to its tangible book value.
As for TSR’s current valuation, the company is currently trading on a P/E of 24.3, a FCF/EV Yield of 25%, and an Acquirer’s Multiple of 4, or 4 times operating earnings. TSR has is also trading at a discount to both its tangible boom value and its net current asset value. All of which indicates that the company remains squarely in undervalued territory.
About The Small & Micro Cap Stock Screener (CAGR 22%)
Over a full sixteen-and-a-half year period from January 2, 1999 to July 26, 2016., the Small & Micro Cap stock screener generated a total return of 3,284 percent, or a compound growth rate (CAGR) of 22.0 percent per year. This compared favorably with the Russell 3000 TR, which returned a cumulative total of 265 percent, or 5.7 percent compound.
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