As mentioned above Reconditioned Systems is simple, they take old office furniture, recondition it, and resell it as recycled office furniture. The company receives over 1,000 tons of furniture annually at their facility in Arizona. They receive over 200 truck loads of used cubes and uncomfortable chairs in various states of disrepair a year. The company then takes the furniture, refinishes it, re-paints it, and resells it as environmentally friendly and new. In todays market I'm sure there is no shortage of old office furniture ready to be recycled.
The US Government is a large purchaser of the company's wares. They state on their website they are veteran owned which might give them preferred treatment in the government supply food chain.
The company appears to have earning power that would support book value, placing them in a category I like to call two pillar stocks. Recent results have been depressed due to an early lease buyout and a lawsuit settlement. The company's quarterly letters don't give much detail on these two items, so we have to take them at face value.
-Last trade at $2.49
-Book value of $4.25 per share
-Paid a $.12 dividend this past year for a 4.81% yield
-P/E of 8.3
-Max earnings $.73, min earnings -$.33
The two pillars
The first pillar of the two pillars is book value. The company's balance sheet doesn't appear to be terrible. They don't give any detail on long term liabilities so I would assume they are debt related. Due to the lack of a easy to use balance sheet (they only provide a summary on their site), I've created my own below:
This spreadsheet doesn't need much explanation, about half of assets are comprised of their Tempe location, and the rest are current assets. Liabilities are payables, customer deposits, and the mysterious "other long term liabilities" category. Other long term liabilities make up $3.4m.
The second of the two pillars is earnings, the company's earnings record over the past eight years is shown below:
The earnings trend is pretty clear, everything was going well until the financial crisis. Companies tightened the purse strings, and office furniture wasn't replaced. I wonder aloud how much of the company's supply was from Bear Sterns and Lehman Brothers in 2008? Coming out of the recession Reconditioned Systems appears to be getting back to business. Sales have slowly recovered, while profits have recovered a bit quicker. The company has been buying back shares, and has a note on each press release offering to buy back shares from shareholders at any time. A decreasing share count is never a bad thing, especially when the company is undervalued.
When it comes to a turnaround I'm reminded of a comment someone left on a post a few weeks back. They said turnarounds are easier when cost cutting can lead to profitability rather than a company needing an increase in sales. A company who only needs to cut costs holds the future in their hands. A company who is relying on the marketplace for increased sales is beholden to whatever economic environment exists. The company could use a mix of the two; reduced expenses, and a slight bump in sales. Without the lease breakage fee in 2012 the company's net income would have been close to $600k, double what it was.. This current year the company's profits have been depressed due to more one time events. If the one time events are truly one time there's no reason a company earning $.40-$.50 a share shouldn't trade at or above book value. If the company does eventually trade up to book value it will take a 70% move to get there. I would say that 70% for an hour of time is probably a good return.
Disclosure: No position