Founded in 1931, Value Line Inc. (NASDAQ: VALU) is an investment research firm that publishes data, analytics, price projections and opinion on stocks, mutual funds, exchange traded funds (ETFs), options and convertible securities. The company puts out several publications, most notably the Value Line Investment Survey which is a trusted resource for many investors. The company’s unbiased publications incorporate results from proprietary software and technology that analyzes data and statistics from multiple sources, which is then layered with insightful interpretations from a team of over 70 veteran analysts. Furthermore, Value Line offers analysis on industries, markets and economies. The company’s customers include individuals, professionals, institutions and investment firms.
$137-Million Market Cap. Zero Debt on Balance Sheet
As of market close on 9/11/2015, Value Line shares were trading at $12.79, giving the company a market capitalization of $137 million. The company’s shares are currently trading near the middle of its 52-week range of $9.93 – $16.70 but below its 50-day moving average of $13.70 and 200-day moving average of $13.91. Year-to-date, shares are down about 22% after rising about 45% over the last two years and after a sharp rally in July 2015. At $12.79 per share, Value Line has a price-to-earnings ratio of 17x with earnings of $0.75 per share.
Value Line recently paid a quarterly dividend of $0.16 per share on August 11, 2015, up about 7% quarter-to-quarter and year-over-year. The company has paid consecutive quarterly dividends since 1983, with multiple special dividends to return more cash to shareholders. Value Line has an annualized dividend of $0.64 and a solid inflation-beating dividend yield of 5%. The company’s top competitors are McGraw Hill Financial Inc. (MHFI) and Morningstar Inc. (MORN), and offer sizably lower dividend yields of 1.4% and 0.96%, respectively.
Catalyst: Stock Buyback in Place
Recently, Value Line’s Board of Directors reaffirmed the company’s $3 million share repurchase program that was originally established on September 19, 2012. CEO Howard Brecher also believes that repurchasing shares at current market prices would return significant value to shareholders. The current repurchase program has approximately $2 million remaining under the program and no expiration date. As of August 25, 2015, Value Line had 9.8 million shares outstanding.
Price-to-Book and Enterprise Value
Value Line has a price-to-book ratio of about 4x, which suggests the company’s stock may be undervalued. Value Line shares are currently trading close to a 10-year low. McGraw Hill Financial has a price-to-book ratio of 33.4x. Morningstar has a price-to-book ratio of 5.2x. On a simple price-to-book calculation and an attractive dividend yield, Value Line shares may appear to be attractive. Interested individuals can be attractive to income investors for their significantly higher dividend yield. This would include myself. I believe Mad Money’s Cramer or a boutique outfit will purchase Value Line. The purchase price, enterprise valuation, would be $121-million due to the debt free balance sheet. Toad
Value Line reported Q1 2016 results for the three months ended July 31, 2015 with total revenues of $8.8 million, down about 3% from $9.1 million in the first quarter of 2015 as copyright data fees fell about 19%. The company reported net income of $2.1 million, or $0.22 per share, an annual improvement of about 4% that was largely tied to an 8.5% increase in total product line circulation and a profit margin of about 21%. Earnings grew about 5% year-over-year for the quarter.
Direxion Investments: Potential Catalyst for Higher Revenues
Value Line’s industry trusted research solutions are now available for dividend-paying ETFs that the company jointly produces with Direxion Investments – a partnership that was launched in March 2015 with the launch of three ETFs focused on high dividends; a small-to-mid cap ETF, a mid-to-high cap ETF and a conservative equity ETF. The ETFs will leverage Value Line’s timeliness, safety and performance ranking systems to investors seeking income, capital appreciation and low volatility. Direxion offers several liquid and strategic ETFs and mutual funds, and had over $9 billion in assets under management as of December 31, 2014.
Despite a slight 3% dip in revenues this quarter, Value Line still delivered on bottom line results due to solid margins and management’s continued focus on cutting costs and growing the company’s bottom line. Value Line reported a gross margin of 80% over the trailing twelve-month period, well above a gross margin of 68% for McGraw Hill Financial, 59% for Morningstar and 61% for the industry as a whole. Impressive margins have led to quarterly earnings growth of 47% over the last 2 years, from $0.15 to $0.22 per share. While the publication and periodical industry has dipped in revenue growth, it is still valued at $41 billion.
Paper-to-Wonderful-World-Wide Web Adaptation
Value Line has also adapted well to an increasingly digital world and consumer trends with the introduction of digital publications on multiple computing and mobile formats that should keep the company relevant in an increasingly digital age.
In the publishing and printing sub-industry, investor skepticism seems to have recently eased a bit. This is amid a somewhat moderating pace of declines in traditional print businesses and further strides with ongoing digital initiatives. This is against a recent backdrop of spin-offs and other strategic realignments over the past few years. In general, newspaper and magazine publishers are decidedly and gradually shifting away from a revenue base that is primarily dependent on traditional print advertising, and circulations towards digital advertising and subscriptions — in the latter case, embracing the paid subscription model en masse. Much like newspapers and magazine audiences that are increasingly accessing such content via online platforms and mobile devices such as tablets, publishers have also embraced a shift towards e-readers which, in recent years, have accounted for a growing portion of publishers’ revenues, helping to offset relatively stagnant growth in sales of traditional paper-based media.
Loyal Customer Base: An Old Friend to Martin Zweig Fans
Value Line benefits from being a household name among serious investors with a loyal customer base. The company has a strong corporate balance sheet with no debt and fiscal discipline that will protect future dividends with steady appreciation and special dividends as cash flow permits, giving the company flexibility in maintaining cash reserves to meet future growth and working capital needs. Investors looking for a conservative dividend yield and modest share price appreciation in the long-run should consider Value Line as a solid investment, especially since shares are now near a 10-year low after seeing highs near $50 per share before the 2008 recession.
I own the stock. I buy more shares as the stock drops a couple dollars. Management is known to be “cheap” to employees. This is a negative. “Cheap” sorts itself out to the buyers over time.
Most employees serve a few years’ experience and move on. I can vision a thestreet.com (aka JJC Cramer) buying $VALU. I have used $VALU services for many years – arriving every Friday via USPS, pre Internet times.