3 Reasons To Roll The Dice On LoJack

By Will Ashworth | June 25, 2012 AAA
Thirty-four years ago a man by the name of Bill Reagan came up with a patent for a vehicle tracking device to quickly located stolen vehicles. That patent turned into LoJack Corporation (Nasdaq:LOJN), which has gone on to recover more than $5 billion in LoJack-equipped assets. Despite this impressive contribution to vehicle recovery in the United States and other parts of the world, the company has always struggled to maintain positive momentum since going public in 1983. Today, its stock trades around the $3 mark, not too far from an all-time low. Blue chip investors need not apply. However, speculators and those with a propensity for risk ought to have a closer look. Here are three reasons why.

Investopedia Broker Guides: Enhance your trading with the tools from today's top online brokers.

Net Current Asset Value

Ben Graham believed that investors would do well by investing in companies with a stock price of no more than 67% of its net current asset value per share (NCAVPS). Because this method employed the "cigar butt" theory of investing, it was essential that you diversify your portfolio. Today, it's very rare for a profitable business to be trading for less than NCAVPS. In the case of LoJack, its NCAVPS as of the end of March is 85 cents a share meaning its stock trades for 3.5 times NCAV. That's reasonable when compared with some of its peers. In addition, it has $2.67 in cash per share and net cash of $1.98 a share. Given its North American business is strengthening, it's going to take a major downturn to bring the company to its knees. Its financial situation is remarkably solid for a business seemingly at the end of its rope on several occasions.

LoJack and Peers

Company

Share Price/NCAVPS

LoJack

3.5

Voxx International (Nasdaq:VOXX)

2.3

iRobot (Nasdaq:IRBT)

3.1

STRATTEC Security (Nasdaq:STRT)

2.1

TiVo (Nasdaq:TIVO)

4.0

State of the Business

Looking at the first quarter revenues for the past eight years, one thing is abundantly clear - LoJack's had better days. At the height of its success in 2007, its revenues in the first quarter were $54.1 million, 58% higher than in 2012. On the bright side, CEO Randy Ortiz has only been in the top job since last November, yet business is already starting to improve. In the first quarter, its adjusted EBITDA was $1.4 million on revenue of $34.3 million compared to an adjusted EBITDA loss of $200,000 on revenues of $30.3 million. The North American segment saw revenues increase 21.3% to $27.1 million, the best result since 2008. For all of 2012, despite a decline in international sales, it expects revenues to grow between 3 and 7% year over year. Ortiz spent 28 years at Ford Motor Co. (NYSE:F) playing a big part in the revival of its North American operations. He's a sales guy; yet the first thing he did was bring in Donald Peck, a CFO with a great deal of experience. Both Ortiz and Peck will receive much of their compensation based on achieving two-year rolling EBITDA targets. Their success depends on the company's success, providing there's an alignment of interests. I like the idea of a car guy running the show; someone who'll be able to make things happen in the showrooms.

SEE: Analyzing Auto Stocks

Recovery Mode

People are starting to buy new cars again. In its first quarter conference call, Ortiz reminded listeners that the average age of vehicles on the road in the U.S. is around 11 years old, the highest it's been in his 30-year career in the automotive business. As consumers continue to replace their old vehicles, LoJack will be in a position to benefit from those sales. Dealers, due to a decrease in new car margins, will look to value added products to fatten the bottom line. LoJack must become closer with its dealer partners and the end consumer if it hopes to dig itself out of the mess it's facing. Ortiz emphasized the fact it must be easy to deal with if it wants to become a relevant part of dealerships again. The brand is strong; it just needs the dealers to buy in. If Ortiz can't convince them, nobody can.

The Bottom Line

We are either witnessing LoJack's last stand or the beginning of its rebirth. I believe it's the latter. Investors with an ability to hold for two or three years and a willingness to risk a few thousand dollars should do nicely. Just don't take the money from your kid's education fund. It's not a sure thing.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.

comments powered by Disqus
Related Analysis
  1. India Remains An Emerging Market Bright Spot
    Stock Analysis

    India Remains An Emerging Market Bright Spot

  2. Still More Gains Ahead For Semiconductor Makers
    Stock Analysis

    Still More Gains Ahead For Semiconductor Makers

  3. Unconventional Drilling Still Has Room To Boom
    Stock Analysis

    Unconventional Drilling Still Has Room To Boom

  4. Finding An Alternative With Currency ETFs
    Stock Analysis

    Finding An Alternative With Currency ETFs

  5. Commodities: Has Their Time Come Again?
    Stock Analysis

    Commodities: Has Their Time Come Again?

Trading Center