Today's market doesn't care about Westell Technologies Corp (WSTL). Most market participants are either repulsed by it, ignoring it, or have just forgotten about it altogether. Aside from a few net-net investors and some bottom fishers there's little attention being paid to it right now.
The less attention being paid to a stock, the more I am attracted to it. There's plenty of reasons why WSTL is sat trading below NCAV on the pink-sheets but where others see risk I see opportunity.
WSTL was founded back in 1980 and operates in the telecommunications industry. The company website describes their business as follows;
'Westell Technologies, Inc., headquartered in Aurora, Illinois, is a leading provider of high-performance network infrastructure solutions focused on innovation and differentiation at the edge of communication networks where end users connect. We enable service providers and network operators to improve performance and reduce operating expenses via a comprehensive set of products and solutions. With millions of products successfully deployed worldwide, we are a trusted partner for transforming networks into high-quality, reliable systems.'
Their markets include In-Building Wireless Solutions, Intelligent site management and Communications Network Solutions. The stock has been pounded down into oblivion in recent years for a variety of reasons including declining revenues and chronic unprofitability.
Charts then numbers.
The stock is down from over $4 in late 2017 to $1.11 today. It bottomed out in early 2020 and is now building a base. It has ticked up of late after it emerged that Congresswoman Debbie Wasserman Schultz has recently bought a few shares. Someone get Pelosi on the phone!
Lets zoom out a bit.
Now we can really start to see the value destruction that has taken place. Back in late 2013 and early 2014 the stock was trading above $16. Whoever was buying up there has surely sold out by now . A decade of brutal share price decline will test the resolve of even the most diamond handed market participant!
Time for the big picture.
The long-range chart shows the tumultuous history of WSTL in all its ugly glory. Back in 2003 the stock traded over $43. In the dotcom boom it breached the $150 zone, and back in the mid 1990's it even traded in the low $200's.
And now here we are, bouncing along support on low volume at just over a buck. No wonder pretty much everyone has given up on the stock.
Management decided to delist in 2020 and did a reverse/forward split cash-out at $1.48 for holders of less than 1000 shares. It was the right thing to do given the firm had racked up an accumulated deficit of over ($350 Mil ) and was bleeding red in most years.
The stock now resides on the 'limited info' tier of the pink-sheets and volume is light.
On to the numbers.
Market Cap = $12,391,350 (OTC Markets lists this wrong as Class B shares are not included)
Share price = $1.11
Common outstanding (Combined Class A & B shares) = 11,163,378
Float = 6,877,675
TBV = $23,522,000
TTM Revenue = $31,531,000
TTM Operating Income = ($2,851,00)
NOL's = $40 Mil
On an assets basis WSTL is cheap and for good reason, several years of declining revenues and unprofitability will do that to a stock.
How cheap is cheap?
The latest quarterly reveals the following;
Current assets =$31,241,000
Total Liabilities =$10,199,000
NCAV =$21,042,000 or $1.88 on a per share basis.
Once a few adjustments are made it gets even cheaper.
Lets scrub off the current and non-current deferred revenue of $398k since they relate to maintenance contracts (services) and not inventory (physical products).
We can also scrub off around $1.64 Mil in liabilities since another PPP loan was just forgiven.
Adj. NCAV thus stands at $23,077,522 or $2.06 per share.
At this price the stock is trading at 0.59x NCAV and 0.53x Adj. NCAV
Now the obvious argument here is that the discount is justified since WSTL is a melting ice cube. The company's financial history certainly supports this assertion.
Revenue down from $236 Mil in 2004 to TTM 31.5 Mil.
Negative Operating Income for the last 10 years.
The picture looks bleak but the descent into the abyss appears to be coming to a halt.
Here's the quarterly financial performance for the last few years.
Notice how the downward trend in revenues seems to stop in 2019?
Since then they appear to have stabilized and the operating losses have narrowed.
In fact WSTL has posted a modest operating profit for the past two quarters. $10k in Q1 and $17k in Q2
Whilst I was going though some old filings and press releases I noticed that WSTL had appointed a new CEO in Sept 2019. Perhaps his appointment has led to a stabilization in the company, I can't say for sure but something positive seems to be happening.
I know next to nothing about the Telecommunications industry but I figure WSTL might pick up some business from the continuing roll-out of 5G. I've also noticed the growing trend toward smart buildings, Internet of Things (IOT) and the deployment of autonomous monitoring systems. Maybe WSTL benefits from that, maybe some of those Biden infrastructure dollars trickle down to them too.
It doesn't take much to move up a stock that's been left for dead.
What are the risks here.
The most obvious one is that the apparent stabilization of the company's financial performance is merely 'transitory' and the descent into the abyss will resume in short order.
Losses could continue and the asset base could keep on melting away.
Another major issue is the dual class structure and insider control. One of the directors, namely Robert W. Foskett, owns 100% of the Class B shares which carry 4 votes for each 1 vote that the Class A shares carry. This means that insiders are in control and shareholder activism is off the table.
With that kind of voting power the board could pull all kinds of nefarious stunts and minority holders would be powerless to stop them.
Maybe they just decide to take the company dark or private and rig it so minority shareholders get screwed in the process.
There's all kinds of ways this could end badly.
As is customary for me, I let the long range chart and balance sheet lead the way. WSTL is cheap on an assets basis and I'll hang my hat on that. The stock is sat close to its all time low on the long range chart and has begun to build a base on low volume.
The strength of the balance sheet creates a window of opportunity for the company's fortunes to improve. The chart shows what's possible if business picks up.
My average cost basis is in the 90's and I've recently bought a little more above a buck, now the buying is done it's a question of holding on for brighter days.
Thanks for reading,
Disclosure - Long WSTL
David J. Flood
UK based Investor. I focus
BLOGS I FOLLOW
No Name Stocks
Svenda's Manual of OTC Stocks
Caveat Emptor Stocks
Nothing But Net Nets
Clark Street Value
Value Investing Blog
Deep Value Investments
Value Stock Geek
Barel Karsan - Value Investing
Yet Another Value Blog
Streets Of Value
TES Optimal Value Investing
The Bad Investor
Adventures in Capitalism
White Chip Stocks
Light Blue Value
Global Investing Insight
Mesaba Range Value
The Market Plunger
Battleship Investing Blog
The Investment Long-List
Grahamian Value Digest
Canadian Value Stocks
Analyzing Bargain Stocks
Hidden Gem Investing