1 $SPRS Value Play, Maybe
A overview of Surge Components, is it a value play or a value trap? Let's check it out.
Summary
- Cheap on multiple valuation metrics
- Concern: High Management compensation
- Entry: Started a tracking position
$SPRS, the good and the bad
I found this company after running a screener for companies trading cheap in relation to both assets and earnings, let's take a look at the numbers (21/04/2025):
- 0.69x NCAV
- 0.62x Tangible Book Value
- MC/5y average FCF = 6.93
- EV/5y average FCF = 0.4375
- Negative net debt
- Profitable in 9 out of the last 10 years
Looking at these key numbers this company screams cheap in all aspects, not extremely cheap, but reasonably so, and that caught my attention right away.
Analyzing the revenues, we can see that for the past 10 years they have been constant around the $30M mark (image below):
The years of more profitability are the ones where the revenues get closer to the $40M mark, and if the business can get close to that in the next 5 years, we'll likely see a jump in the stock price.
For this type of situations that's not something that I really care about, usually the cheapness of the numbers is enough for me. But in this company, after reading the last 10K there was a situation that left me a bit concerned and that was the management compensation, they take home $1M per year while the company market cap is only $12M, they take home almost 10% of the company market cap, to me that seems to excessive. And this was the reason why I didn't jump straight away and bought a full position. Clearly it's a company run by people only concerned in putting money into their pockets.
After further consideration of the good and bad of the company, I decided to start a tracking position that will be less than 1% of my portfolio to keep following the company. Also, looking at the company char,t we have a support level at around $1.95, so unless there's terrible news, that should be the downside risk in the near term.
Would also like to leave here another blog post about this same business from Dan:
https://www.nonamestocks.com/2023/12/sprs-is-consistent-profitable-and-cheap.html
Please go there and check it out.
If you have any other information or noticed that I missed anything, please let me know in the comments.