Despite an agreement with a Chinese contract manufacturer to begin production, STR Holdings Inc., the East Windsor-based maker of solar encapsulation materials, is hovering around a rare distinction that all publicly traded companies want to avoid.
STR closed at $150 a share on the New York Stock Exchange Friday, for a total market value of $62.6 million. As of Sept. 30, the last date for which it reported, the company had $62.25 million in cash — with zero debt.
That puts STR perilously close to the Maginot line, where the total value of all its publicly traded shares is less than the cash it has on hand. Basically, it’s the market saying the company’s operations have no value.
Nine times in the 16 trading days of 2014, STR has closed at or below that level, which is $1.49 a share. On Jan. 14, STR closed at $1.33, a market value of $55.5 million, fully 6.7 million less than its Sept. 30 bank account.
This is all the more amazing considering the company listed $132 million in assets as of Sept. 30, including not only the cash, but $10.7 million in inventory and $28.7 million in property, plants and equipment, and just $16.9 million in liabilities, with no debt at all.
Situations like this, sometimes called “negative enterprise value,” are rare, with just a small handful of companies facing it at any given time.
Does this mean the troubled company and its stockholders’ investments are doomed? Not necessarily, and in fact some see it as a buying opportunity — but not for the meek.
STR in 2013 lost its largest customer, First Solar, and closed an East Windsor factory and research center that was just two years old. In November, the company fired four executives at the level of vice president or higher, to save money, after announcing a $6.2 million loss from operations in the third quarter. It’s closing a plant in Malaysia that opened in 2009.
The company, based in Enfield since its founding in 1944 under a different name, now lists its headquarters as East Windsor.
But this week the company said demand for its latest products in China is picking up, and it reached a deal to hire ZheJiang FeiYu Photo-Electrical Science & Technology Co., Ltd. to make materials under its specifications. It’s also revamping a leased facility in China.
Analyst Houman Tamaddon wrote a report this month in the investor service Seeking Alpha, in which he called STR a “cigar butt,” a reference to Warren Buffett’s 1989 shareholder letter that compared some bargain companies to cigar butts on the street, cheap but perhaps with a few good puffs left.
Tamaddon’s Seeking Alpha report makes the point that STR management has been frank about the problems:
The bullish case for STR is that at the current stock price, the company is very attractive. The poor performance of the company has been mostly due to macroeconomic shifts out of the control of management. A “hiccup” in the environment would drive the stock price considerably higher. If no hiccup materializes, investors can be comforted that loss of their investment is limited due to the company’s strong balance sheet. At current prices, STR, like the house wallpapered with $100 bills, presents an opportunity for investors.
Of course, as he notes, shareholders can’t easily get at all those $100 bills. And it’s possible that STR has less cash on hand, as we’ll find out when the company reports fourth-quarter results.
One way to look at odd situations like STR is through book value — assets minus liabilities. While typical, healthy industrial companies trade at 2 to 3 times book value, STR is trading at barely more than half of its $2.75 a share net worth.
That means one of two things: Either the company is worth more dead than alive, as a liquidation, or it has nowhere to go but up. The shares went public in 2009 at $10 and reached a high of $27.68 a year later.
For Connecticut, the game is largely lost, as STR, which had 300 local employees in 2011, has just a bare bones home-state staff. One bright note: Although STR did receive $829,000 in federal tax credits, it’s one of the rare firms that did not see any state assistance.