Several bloggers and independent analysts whom we follow recently wrote about a very interesting company, Butler National Corporation (OTCMKTS: BUKS). This article, this other one, and this piece, all from Seeking Alpha, recommended to have a look at the fundamentals of the company. Thus, this is what we did and we figured out that it is a hidden gem that has already returned interesting returns to some savvy traders. Have a look:
On the top of it, we could see that in the last week, there was an increase in the number of shares exchanged and the share price increase dramatically. We will investigate the news and give you out opinion about this fact.
Butler National Corporation was founded in Kansas in 1960. The company’s headquarters is in Olathe, Kansas. It has two different activities; Professional Services and Aerospace Products. The aerospace products activity is divided into two product lines: Aircraft Modifications and Avionics. The first division is in charge of modifying personal or company owned business-size aircraft to add radar systems, aerial photography capabilities, and stability enhancing modifications. The company owns another subsidiary, Avcon Industries, Inc., which is in charge of all the aircraft features. The Avionics’ division manufactures and sells electronic equipment for the aviation industry. Additionally, the Professional Services’ activity obtains revenues from professional management services in the gaming industry and from professional architectural, engineering and management support services. The company owns different subsidiaries that are engaged in these activities.
The last press release that we noticed is from March 31, 2017. On that day, the company appointed a new CEO, Tad McMahon. This executive brings a strong accounting background. He is 49, and holds a graduate degree in accounting from the University of Northern Iowa.
A few days earlier, the company released its third quarter results and highlighted an increase of $11.3 million in revenue in the three months ended January 31, 2017 as compared to $11.1 million in the three months ended the year before. Additionally, it is remarkable that the company invested approximately $434,000 in projects focusing on the development and acquisition of new product lines. We expect this investment to pay dividends down the road in top line growth.
On December 20, 2016, the company authorized the repurchase of shares of the company in the open market. This is in a way a dividend given to current shareholders, since it will increase demand for the stock and normally will increase its price:
“On December 20, 2016, Butler National Corporation (“Butler National”) announced that its Board of Directors authorized the repurchase of shares of Butler National common stock in the open market or otherwise, at an aggregate purchase price of up to $500,000. The timing and amount of any share repurchases will be determined by Butler National’s management based on market conditions and other factors. The program is currently authorized through May 1, 2018.” Source
Balance Sheet per share numbers
The following financial figures will be appreciated by savvy traders and value investors:
- Market Cap: $17.12 million
- Enterprise value: $20.62 million
- EV/EBITDA: 3.47
- Book Value per share: 0.36
- Cash per share: 0.08
The company has little cash, but the EV/EBITDA is quite cheap and the book value per share is higher than the amount of money that investors are paying for the shares in the market.
Daly Joseph Patrick, activist investor and hedge fund manager, holds 5.85% in the company. In addition, he filed a 13D filing, which means that he may talk to the management to change the direction of the company. Maybe the stock purchase plan was actually his plan. In any case, he is the catalyst that we were looking for.
Butler National looks to be a smart play if you are looking for a combination of value and some catalysts. The company is delivering good news. It is trading at liquidation value and there’s now an activist shareholder involved. We do not identify these kinds of gems everyday. Just to let you know, like always do your own research to check if our conclusions are correct.
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Disclosure: We have no position in BUKS and have not been compensated for this article.