We all have stories about the lady that got away. Mine is surprisingly not about Taylor Swift, mostly because there’s no way security would let me get close enough to even think that was a possibility. No, it was back in the winter of 2001, my last year of high school. She was sexy and would actually talk to me, I was shy and scared of girls in general, so I didn’t make a move. She ended up with another guy, they eventually got married, and she’s now a mom two times over. She’s probably watching an episode of Caillou and wearing mom jeans right now. Point, Nelson.
(Looks around, realizes I’m in a public library writing a blog post, weeps openly)
Anyway, let’s look at a recent stock that managed to elude my money, Ballantyne Strong, which kinda sounds like a Chinese chain of workout places. I first discovered the stock a few months ago, when it came up on the value screen I regularly run. They’re in the movie business, supplying projectors, screens, and other behind the scenes stuff (see what I did there?) to movie theaters. Revenue is down sharply compared to last year, because the company enjoyed a major boom in sales as theaters were forced to switch to digital projectors, with each setting back a theater a few thousand bucks. They’ve all made the switch, so projector sales have obviously slowed.
They’ve responded by offering a service where their sales reps will cover any repairs to the new projector in exchange for a monthly fee. So far customers have slowly been signing up, but nothing compared to the projector boom over the past few years. Their costs are mostly variable in nature, and they’ve managed to remain profitable even after revenue fell off a cliff.
The company stashed away cash during the good times, and it sat on $3.19 per share in cash, compared to a share value of $4.20 (when I was looking at it). They made $0.13/share during the previous two quarters, and $0.22/share over the last year. Once you stripped out the cash I was looking at a profitable company that traded at just over 5x the earnings of the business.
There were just a couple of things that made me nervous. First, management publicly stated they were looking to spend that cash hoard on acquisitions. That always makes me nervous, since there’s always the potential to screw it up royally. And secondly, they don’t actually produce any projectors. They buy them from a Japanese company, NEC, and there’s always the potential NEC could terminate the relationship.
Now onto the positives. They seem to be Imax’s preferred screen provider, the most aggressively expanding operator. They’ve also got a lighting division that’s just a small part of the company, yet they still got the contract to build the spotlights at New York’s new Freedom Tower. Previously they got the contract to build the spotlights at The Luxor in Las Vegas, which seems like a decent enough place to exchange some gambling money for watered down free drinks.
So what happened? It seemed like a decent company trading for a severe discount, which is exactly what I like to look for. There were no major surprises when I read through the annual report, and I could see the new leaner company remaining profitable. The only problem was that there appeared to be no catalyst to unlock value outside of a special dividend, something management has never even hinted was a possibility.
So I got greedy.
I decided I wasn’t going to buy the stock until it got under $4.00, giving myself a larger margin of safety. Unlike some of the other stocks I’ve bought (i.e., Orange Telecom), I didn’t see any way Ballantyne could go up 200 or 300 percent. I saw a maximum of 50% upside in the company, so I figured I’d wait for my entry point. This was the end of September. I didn’t have to wait long, but it wasn’t the outcome I expected.
And a week later it was up some 25%. You probably heard me swearing from your house. I apologize for that.
The company announced they were acquiring Convergent Media Systems, a former subsidiary of the Sony Corporation for $16M. Convergent sells those TV based advertising systems you see while standing in line at the cashier. Ballantyne figures they will add six to ten cents per share in 2014 and fifteen to twenty cents in 2015 to Ballantyne’s bottom line.
It was exactly the catalyst the stock needed, and I missed out.
So what’s the lesson here? I don’t know. If given the chance I’m not sure I would have done anything differently. I would have loved a 25% return over a week (who wouldn’t?) but I just got the timing wrong on this one. Like a good batter, a value investor won’t swing at every pitch, even if they are a strike.
Still, would you guys hate me if I secretly wanted to short this thing into the ground? Just kidding. Kinda.