Crocs, Inc. (CROX), Activision Blizzard, Inc. (ATVI), NVIDIA Corporation (NVDA): Companies That Are Cheaper Than They Appear

Page 1 of 3

One problem with using a simple P/E ratio as a measure of value is that it completely ignores the balance sheet. A company with a large amount of debt is certainly less attractive than a company with no debt, even if the P/E ratios and growth prospects are the same.

This can go the other way as well. A company that has a lot of net cash on the books is actually cheaper than the P/E ratio makes it appear. If you could buy the whole company at the current market price, your total cost would be reduced by the net cash, effectively lowering the price you pay. This makes the normal P/E ratio greatly inflated without an adjustment for cash.

Here are three examples of companies that have enough cash to significantly skew the P/E ratio.

Crocs, Inc. (NASDAQ:CROX)

More than just clogs

The story of shoe company Crocs, Inc. (NASDAQ:CROX) is one that pops up time and time again. After its IPO at the beginning of 2006, the stock more than quadrupled on strong sales of its ubiquitous clogs and extreme optimism for the future. Reality quickly set in, with sales declining and the stock falling off a cliff. It seemed that a company that derived almost all of its sales from a single polarizing product wasn’t a great long-term investment at a nosebleed valuation.

Since this collapse, the company has greatly diversified itself. Crocs, Inc. (NASDAQ:CROX)’ revenue resumed growth in 2010 and surpassed its 2007 peak in 2011. The company is no longer a one-hit wonder, and there is a legitimate growth story developing.

This newfound success has led to a serious pile of cash on the company’s books. At the end of the most recent quarter, Crocs, Inc. (NASDAQ:CROX) had $289 million in cash and no debt, leading to $3.25 per share in net cash. With a stock price around $13.50 per share, this cash represents a full 24% of the total market capitalization.

Crocs, Inc. (NASDAQ:CROX)’ standard P/E ratio based on TTM earnings is 11.5, but factoring in the cash lowers this ratio to the bargain level of 8.75. I wrote about Crocs’ short-term issues in a previous article, and my conclusion was that earnings were likely being temporarily suppressed. The forward P/E ratio, including the effect of the cash, would then be even lower.

Video game juggernaut

Game company Activision Blizzard, Inc. (NASDAQ:ATVI) is responsible for two of the most successful video game franchises in history, Call of Duty and World of Warcraft. Call of Duty has become the de facto standard online shooter game, with the most recent iteration selling nearly 25 million copies since its release. The next version, Ghosts, is set to release this November.

World of Warcraft is a massively multiplayer online role playing game, or MMORPG, which users must pay a monthly subscription to access. With millions of active users worldwide, World of Warcraft is a cash cow for Activision Blizzard, Inc. (NASDAQ:ATVI), helping create a huge cash balance for the company. At the end of the most recent quarter, Activision had $4.55 billion in cash and no debt, leading to $4 per share in cash. With a stock price around $16.30, this cash represents about 25% of the company’s total market capitalization.

Page 1 of 3

Biotech Insider Alert - $6 Stock To Hit $40

$200 Million Dollar Healthcare Hedge Fund's #1 Best Idea Right Now

The best healthcare hedge fund out there right now is one of the largest shareholders in this biotech stock. The fund returned more than 20% in each of the last 2 years with a virtually fully hedged portfolio, and it's sending out a BUY signal on this biotech stock. Get your FREE REPORT today (retail value of $300)

This is a FREE report from Insider Monkey. Credit Card is NOT required.
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best Romance Movies of all Time

The Most Wanted Drug Lords

The Oldest Money Managers

The Greatest Directors in the World

Largest Animals in the World

World’s Most Expensive Desserts

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!