Boring and profitable Jemtec is a true hidden gem waiting to be discovered. Let's go over why I believe Jemtec could be a multi-bagger in the making. For starters, Jemtec was trading at around 40 cents per share 5 years ago and today trades at $1.88. It has paid a 25 cent per share one time dividend earlier in 2021 and it may continue to issue more special dividends. As of the latest financial statement, Jemtec has a cash balance of $1,615,920. Their current marketcap is right around $ 5,253,996 which implies that over 30.7% of their marketcap is held in cash. The company holds no long or short term debt and has a short term lease liability in the amount of $ 9,647. Most of their long term property, plant and equipment has been fully depreciated on the books and so book value is being under represented. Shareholders equity is currently at $1,642,701 and we get a price to book value of just over 3 times. The company holds no intangible or goodwill on the books.
If we look at the income statement we get the following: Over the last 12 trailing months we get a company that has produced $508,560 in net income. If we take away the cash balance we get a company that is trading at a PE ratio of 7.15! Moreover, its return on equity is 30.95%
In the last 12 months the company has revenues of $2,468,964 and a weighted average diluted share count of 2,809,728. From the months of May 1st 2015 to April 30th 2016 or precisely 5 years ago, the company has achieved revenue of $863,616 with a weighted average diluted share count of 2,485,654. This implies a 5-year revenue per share growth rate of 20.39% which is outstanding! Year over year, the company has achieved revenue growth rate per share of 6.599%. Let's take a look at valuation.
Let's assume the company can maintain its net profit of about $500k going forward. I will use a cost of equity of 10% and a pessimistic growth rate of 0 %.
Market value= 500/ (10%-0%) = $5m or slightly below its current market value. If we add the cash balance of $1.6 m we get a fair value of about $6.6m which is about 25% higher than we are at today. There is certainly sufficient evidence to support the claim that the company should growth in the years ahead and so a 0% growth rate is rather unrealistic. Let's go ahead and assume a 2.5% growth rate which corresponds to the breakeven inflation rate over the next 10 years. Under the following scenario and using normalized earnings of $500k per year we get the following:
market value= $500k/(10%-2.5%) =~ $6.67 m
Add the cash balance of $1.615m and we get a fair market value of $8.285m which is 57.7% higher than current market cap is today. Here is the interesting part. What if the company can continue to growth it's equity at double digit growth rates for many more years into the future? What should we be worth today? I will say almost certainly that the company has some serious potential for long term gains and I think today's market prices provides a safe cushion on the downside with significant upside potential.