LQDT - Liquidity Services, Inc.

[HWWProject]

Purchased LQDT last week at $10.42.  In 2012 was selling above $64 per share.

 

It can be uncomfortable buying stocks selling at 52-week lows, but that is where value investors tread and is often the most opportune time. This is a debt-free, small-cap ($312 M), Magic Formula stock, with Insider buying, selling at 52-week lows. Those are hard to find in today's market.

 

Link to article: http://www.healthywealthywiseproject.com/wealthy-blog/liquidityservicesprovidingusasurplusreturnoninvestment

Highlights

 

    Liquidity Services, Inc., (LQDT) is a Small-Cap value stock selling at less than 6 times prior (2012) peak earnings, and yielding 13% on free cash flow.

    Several company Insider's have recently purchased the stock at around $13 per share.  You can still buy in below their entry point.

    LQDT is currently a Joel Greenblatt 'Magic Formula' stock.

    More than 50% upside indicated by my calculation of Intrinsic Value

 

Appreciate any input/insight into the stock from the group

[fmnpartners]

HWWW Project -

 

I think the analysis you reference is substantially flawed and I would encourage you to investigate this company in more depth before you purchase more shares.  This company has faced a series of challenges in the last few years that have radically altered the complexion of the company's cash flow and profitability.  It lost a portion of a major contract with the DoD and the portion it retained is substantially less profitable than is has been in the past.  In addition, another significant contract, which has carried a cloud of controversy with it since before LQDT acquired it in 2011, is up for renewal in 2016.  The loss of this contract or substantial changes to it would be an incredibly painful blow.  FY14 was a disaster - revenue, operating income, EBITDA, earnings were all down significantly.  Perhaps most telling, CFO was down -75% and FCF declined -90% in FY14.  Moreover, technology expenses continue to grow exponentially, increasing from 14% of sales to 22% of sales between 2012 and 2014.  This company is likely to be burning cash in FY15 given the continuing negative trends in its business segments over the last few quarters and the recent announcement of the Liquidity One platform transformation initiative which mgmt expects to cost $14-15mm in FY15 alone (with more coming as scheduled completion date is sometime in FY17).  The LO initiative sounds like LQDT's version of an SAP enterprise system overhaul - expect it to take longer and be more expensive than mgmt suggests.  In addition to the significant operational issues facing the business, the management team members have been substantial NET SELLERS over the last few years, and the buys you noted from C2Q14 pale in comparison to the amount of selling by top executives in aggregate the last two years.  CEO Bill Angrick has sold over $100mm of stock since the IPO; and, despite being the company's largest individual shareholder and a person one would think would be more interested in buying at recent price levels, he actually sold another 23.5k shares on Oct 1 at a price of $12.88.  Considering the foregoing, determining a reasonable range of intrinsic value is challenging.  This ones goes in my too hard pile.  I do hope the investment is a 10-bagger for you, but I'm content letting you have this one if that's the outcome.

[thepupil]

Would echo the above. Very popular short amongst very smart people for these past few years. I've heard  that the DoD contract has ginormously out of whack margins and would not use past financial performance as any sort of guideline.

 

Maybe the short has played out and it's all good from here but you would need to get a lot more color on their book of business and profitability going forward to conclude that. Where the stock was a few years ago isn't relevant.

[thepupil]

 

 

    Liquidity Services -24.3% after Wal-Mart terminates deal

        Declaring Liquidity Services (NASDAQ:LQDT) has failed to comply with deal provisions related to service level requirements and restrictions on the disposing of merchandise, Wal-Mart has terminated an agreement through which Liquidity bought closeouts, customer returns, and excess merchandise for resale. (8-K)

        Liquidity disputes Wal-Mart's allegations, and is "evaluating all of its options" for contesting the deal's termination.

        The company insists Wal-Mart's move won't prevent it from hitting its FQ1 guidance. However, Janney notes Wal-Mart accounted for 11% of FY14 (ended Sep. '14) GMV, and thus expects estimate cuts.

        Separately, Liquidity announces the DoD has granted it a two-month extension for its surplus property sale contract.

[Jurgis]

Took a look at this, since it was mentioned as large holding of Askeladden Capital ( http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/the-22-year-old-hedge-fund-manager/ ). Based on FCF ( http://yahoo.brand.edgar-online.com/displayfilinginfo.aspx?FilingID=11525674-853-161090&type=sect&TabIndex=2&dcn=0001104659-16-137072&nav=1&src=Yahoo ), it seems cheap; holds a bunch of cash. But I guess the contracts are a big risk. Revenue dropping in 2016. Haven't looked at the significant contract expirations and renewals yet, though this thread does not paint a positive picture. Probably skip.

[arkenstone]

I think this is starting to look interesting. As of yesterday's close, the stock was trading at $7.50 and they have roughly $4 in cash per share. Surely the business is worth something. Since they're not EBITDA positive, let's say they fetch, worst case, 0.2x revenue on an EV/Sales basis (they did ~$320M last), so that's about $2.0 per share. So we get at least $6.0 on what I believe to be a very bearish scenario or about 20% downside. So clearly, this can have a very positive skew if things improve.

 

Of course, there's some hair in this. There's plenty of customer concentration and the less favorable government contracts should continue to be a headwind, but this past quarter they started to see some growth in their commercial and muni sales. Will definitely look into this in more detail, but would love to hear your thoughts.

[Guest roark33]

I don't think this company will ever be profitable.  Listen to a conference call where the CEO talks about international opportunity, it sounds so obvious he is blowing smoke.  They can't make the US model profitable, but he is talking about international opportunity and TAM...just makes no sense.  I have had many discussions with Samir about this company.  They have been around for over 15 years and have never really made money except the over-priced govt and Wal-mart contracts.  Without those, this doesn't work.  Cash will continue to be burned, etc.  My two cents.