I’ve mentioned several times that my favorite way to hunt for stocks is to just browse through the pink sheets, looking at random stocks and seeing if any values pop up. Some of my biggest winners have come about this way (including a stock I invested in / discussed long ago, Meritage (MHGU), though I don’t hold too many shares anymore). The fact is that these random, super illiquid pink sheet stocks often trade at a huge discount that you simply can’t find on the exchanges.
With that in mind, I present Bollinger (BOLL). The company distributes a variety of products under a bunch of different brands (mainly flashlights and sunglasses), which you can see by clicking the relevant icons on their corporate page. To alleviate a common concern w/ pinksheet companies, this isn’t a fraud and their products aren’t fly by night- their products are a major seller on amazon and are very highly rated.
Bollinger stopped reporting to the SEC in 2001 and went dark for a long time before starting to report in March of this year. But man, have the reports been impressive: sales in the fiscal year ending March 2010 came in at $14m. They did more than that in the first six months of this year. Net income for the past twelve months has come in ~$6m, compared to their market cap (using 7.4m shares out and a price per share of $1.35, the mid-point of their rather wide bid ask) of under $10m.
In other words, Bollinger seems to be the steal of the year. It’s trading for about book value and under 2x P/E despite 1) growing 50%+ and 2) earning an ROE over 50%. I don’t even know how to put into words how ridiculous the combination of all those factors is.
However, you may notice I’m writing about this stock w/o a long position in it. Which begs the question: why am I not backing up the truck to buy every share I can find.
Trust me, I thought about it. But there’s one (and literally only one) thing that has kept me from doing so.
Management seems intent on stealing the company.
Before they started reporting, BOLL had 4.4m shares outstanding. After they started reporting, they had 7.4m.
Why the big jump?
Management simply gifted themselves 3m shares.
Now, the company is pretty tight in it’s disclosures, and it doesn’t say anything about why they made such a gift. It’s possible that they didn’t officially pay themselves a bonus from 2001-2012, so this served as a cumulative bonus. I don’t know.
But management and insiders already owned 60% of the company, according to their last proxy filed before they ceased reporting. It’s not like they really needed another slice of the pie. They were already enjoying the bulk of all the value they were creating!!!!
Maybe I’m misreading this. I’ve seen plenty of abusive packages and ignored them in investments, and disclosure is limited here (it’s possible they’ve been sending annuals and notes to shareholders explaining exactly what’s happening). But management has a stranglehold on this company, and combine the huge stock grant with the 10+ years of non-disclosure, and it seems to me they have no regard for their shareholder partners.
Add to that the fact Bollinger has been buying shares back with basically no disclosure around their operations. As long time readers know, I love share buybacks. But Bollinger’s cash flow statements for the year ended March 2011 (see page 5) show they were buying back shares at a time when they weren’t disclosing financials. Another mark in the “mgmt trying to steal the company” category.
And that’s why it’s a pass for me. For now, at least.
Disclosure: Long MHGU
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Those “Advances to Partners” aren’t too exciting either, and seems to go along with your concerns above.
Pretty decent sized settlement in relation to the company in early 2000′s re: alleged management actions in the mid 90′s: http://securities.stanford.edu/1012/BOLL96/
From the lawyer report fileed on Pink Sheets…these are not audited statements….Red Flag.
The financial statements of Bollinger contained in the Information were not audited and are prepared by Weaver and Tidwell LLP, Certified Public Accountants and Consultants (“Weaver”), in accordance with GAAP standards. Weaver has experience with reporting such financial documents through its years of experience in business and is believed to be qualified in preparing GAAP financial statements. Weaver and Tidewell are CPAs licensed in Texas and has over 60 years of accounting experience, as a firm, in public accounting practice, consulting and private industry. Weaver provides clients in all industries with comprehensive services, including audit, tax and advisory services. Its client base includes private and publicly held business enterprises, local governments, municipalities, nonprofits and individuals.
I would say this smells like a fraud, but the stench is so thick I can actually taste it.
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