Wednesday, October 29, 2008

Rising Tide is Not Lifting All Boats; The case for a New Net/Net: AC Moore (ACMR)

While yesterday's 10% move in the Dow brought was sigh of relief to many investors, the flotsam and jetsam (aka deep value) is not yet participating. That means that there are a lot of bargains out there, but you still have to be very cautious, and very patient.

Let's face it, retailers are struggling to put it mildly, and this will likely continue at least until the panic menatlity subsides. But we are seeing some interesting situations in retail.

AC Moore
AC Moore (ACMR)is a Berlin, NJ arts and crafts superstore, with 136 locations on the east coast. Currently trading at $2.88, shares have been pounded this year, and are off 83% from the 52 week high. Sound familiar?

This company has also recently joined the ranks of the net/nets, the downtrodden companies we love so much here at Cheap Stocks. We are familiar with the store and concept having used their framing services in the past, (and Mrs. Cheap Stocks has been a frequent visitor to our local store).

While we are not wearing rose colored glasses believing that retail will recover quickly, we like the AC Moore story, because they appear to have the resources to weather this storm. With $45 million in cash and just $20 million in debt, ACMR has burned through $8 million in cash during the trailing 12 months. (A prolonged recession will likely increase the burn rate)

With a current enterprise value of juat $36 million, this company is priced for the scrap heap. Could it ultimately be headed there? Anything is possible. But the concept of these stores is fairly unique (call it a poor-man's Michael's), and it generates 25% of sales from art and scrapbooking (I don't get the whole scrapbooking craze, but that doesen't make it any less real).

I don't like the fact that all AC Moore stores are leased, and that the company does not own its real estate, but still find this a potentially interesting opportunity.

AC Moore
Ticker: ACMR
Price: $2.88
Market Cap: $59 million
Net Current Asset Value(NCAV): $92.5 million
Cash: $45.6 million
Cash/share: $2.25
Net Cash/share: $1.24
Price/Book: .3

*The author does not have positions in any of the companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only.

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