Is NHLD stock undervalued?
NHLD's current share price probably offers a substantial value to shareholders. NHLD has positive free cash flow, and on a per share basis, NHLD has almost $2 of cash plus $1 worth of deferred tax assets on its Balance sheet, and it has no debt or preferred stock. When also considering NHLD's risks, NHLD's intrinsic value is probably substantially above Friday's closing share price of $3.31 and its 52-week high of $6.00.
Even though NHLD has promised a road show, they have not announced it. If NHLD makes a road show announcement soon, it will increase NHLD's visibility to new potential shareholders. If no announcement is forthcoming, it can be assumed NHLD is in merger negotiations. We should know one way or another soon.
The risk is someone will attempt to takeover NHLD before the company has adequate visibility to new shareholders. As a result, the acquiring company may attempt to offer NHLD shareholders a price that is below fair value.
There are three factors that may prevent a below fair value offer for NHLD are:
1. NHLD may begin a road show soon to increase the company's visibility, which would result in stock price closer to fair value.
2. NHLD's Insider ownership is high (approximately 20%, excluding Klein's 8%). "Accordingly, these individuals and entities will be able to significantly influence most, if not all, of our corporate actions, including the election of directors, the appointment of officers, and potential merger or acquisition transactions."--10-K
3. NHLD's 10-K preferred stock language was deleted. Deleted phrase: "We have no current plans to issue any preferred stock in the next 12 months, although the issuance of preferred stock may be necessary in order to raise additional capital." A preferred stock issuance could be used to protect current common shareholders against an unwanted sub-par takeover.
While short-term movements in stocks are impossible to know, it appears NHLD has substantial support at this level and may get a well-deserved bounce next week.
We will see.
