One of the cheapest stocks in our Small & Micro-Cap Stock Screener is Image Sensing Systems, Inc. (NASDAQ: ISNS).
Q1 hedge fund letters, conference, scoops etc, Also read Lear Capital: Financial Products You Should Avoid?
Image Sensing Systems Inc develops and markets software-based computer enabled detection products for use in traffic, safety, security, police and parking applications. The company operates through two segments namely Intersection and Highway. Its Video products are sold in the Intersection segment whereas Radar products are sold in the Highway segment. The company markets its products as Autoscope video or video products and RTMS radar or radar products, which enables its end users with complete solutions for the intersection, and transportation markets. Its products are used primarily by governmental entities.
A quick look at Image Sensing Systems share price history below over the past twelve months shows that the price is up 24%, but here’s why the company remains undervalued.
(Source: Google)
The following data is from the company’s latest financial statements, dated March 2018.
The company’s latest balance sheet shows that Image Sensing Systems has $3.32 Million in total cash and cash equivalents. Further down the balance sheet we can see that the company has zero debt. Therefore, Image Sensing Systems has a net cash position of $3.32 Million (cash minus debt).
Other financial strength indicators show that the company has a Piotroski F-Score of 7, an Altman Z-Score of 6.64, and an Beneish M-Score of -2.79. All of which illustrate that the company remains financial strong, is safe, and is not an earnings manipulator.
If we consider that Image Sensing Systems currently has a market cap of $21 Million, when we subtract the net cash totaling $3.32 Million that equates to an Enterprise Value of $18 Million.
If we move over to the company’s latest income statements we can see that Image Sensing Systems has $2 Million* in trailing twelve month operating earnings which means that the company is currently trading on an Acquirer’s Multiple of 8.13, or 8.13 times operating earnings. That places Image Sensing Systems squarely in undervalued territory.
The Acquirer’s Multiple is defined as:
Enterprise Value/Operating Earnings*
*We make adjustments to operating earnings by constructing an operating earnings figure from the top of the income statement down, where EBIT and EBITDA are constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–income that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
It’s also important to note that if we take a look at the company’s latest cash flow statements we can see that Image Sensing Systems generated trailing twelve month operating cash flow of $2.51 Million and had $1.34 Million in Capex. That equates to $1.18 Million in trailing twelve month free cash flow, or a FCF/EV Yield of 15%.
Summary
In summary, Image Sensing Systems is trading on a P/E of 11.4, which is considerably lower than its 5Y average of 26.9**, and an Acquirer’s Multiple of 8.13, or 8.13 times operating earnings. The company has a strong balance sheet with a net cash position of $3.32 Million and has a FCF/EV Yield of 15% (ttm). All of which means that the company remains undervalued despite a 24% increase in its share price over the past twelve months. A view shared by Jim Simons, who currently holds 189,000 shares in the company as of his latest 13F over at WhaleWisdom (dated 2018-3-31).
(**Source: Morningstar)
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