– By Alberto Abaterusso
Some investors buy stocks whose stock price is trading below their liquidation value. This investment strategy is based on the assumption that it will not be long before Mr. Market revalues stock prices to near or above the liquidation value, generating significant capital gains. In addition, shareholders will, in theory, still be able to profit from the liquidation in the event of company bankruptcy.
The liquidation value of these so-called net working capital stocks is calculated as “cash and short-term investments plus 75% of accounts receivable plus 50% of stocks, less total liabilities”.
Below are three securities whose share prices are trading below their net working capital.
The first short-term stock that might be of interest to investors is Shineco Inc (NASDAQ: TYHT), a Chinese producer and marketer of Chinese herbs and other plants focused on health and wellness.
The stock was trading at around $ 2.70 per share at the close on Wednesday, 70.4% below net working capital of $ 9.13 for the quarter that ended in June 2020.
GuruFocus gave a rating of 7 out of 10 for the company’s financial strength rating and 6 out of 10 for its profitability rating.
After falling 44.4% in the past year, the stock has a market cap of $ 8.21 million and a 52-week range of $ 2.10 to $ 9.63.
Income Opportunity Realty Investors Inc
The second stock that short-term investors might be interested in is Income Opportunity Realty Investors Inc (IOR), a Dallas, Texas-based real estate investment company with equity real estate assets (including undeveloped properties) in Texas. .
The stock was trading around $ 11.15 per share at the close on Wednesday, almost 30% lower than net working capital of $ 15.90 for the quarter that ended in June 2020.
The company has a GuruFocus financial strength rating of 7 out of 10 and a profitability rating of 4 out of 10.
Due to an 11.8% decline over the past year, the stock has a market cap of $ 46.47 million and a 52-week range of $ 8.32 to $ 17.
The company’s largest fund holder is UBS Group AG with 0.03% of the shares outstanding, followed by Advisor Group Holdings, Inc. with 0.01%.
NextCure Inc (NASDAQ: NXTC), a clinical-stage biopharmaceutical developer based in Beltsville, Md., And based in Beltsville, Md., Is the third-largest clinical-stage biopharmaceutical developer of new treatments for cancer and other diseases immune.
The stock was trading at around $ 10.31 per share at the close on Wednesday, about 5% lower than net working capital of $ 10.82 for the quarter ended June 2020.
GuruFocus gave a score of 5 out of 10 for the financial strength of the company.
After an 84.6% drop in the stock price over the past year, the market cap is $ 284.07 million and the 52 week range is $ 7.91 to $ 109.
As of October, the stock had a strong buy recommendation rating, three buy recommendation ratings and five recommender ratings for an average target price of $ 23.67 per share.
ORBIMED ADVISORS LLC is the leader among the company’s major fund holders with 9.84% of the shares outstanding, followed by Sofinnova Ventures Inc with 9.70% and MORGAN STANLEY with 6.82%.
Disclosure: I have no position on the titles mentioned.
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This article first appeared on GuruFocus.