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CACH - Cache Inc


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Company (Cache Inc – Bought at $3.99, 52 wk range – 3.86 – 7.25, P/B – 0.81, Market cap - $51MM)


Profile: Cache owns and operates more than 270 women's-apparel specialty stores. The company's stores are concentrated in large metropolitan and suburban areas across the United States, often in shopping malls. Merchandise sold includes sportswear, eveningwear, and various accessories. The company purchases approximately 98% of the goods it sells from domestic vendors and about 2% from foreign investors


Story: The story is very simple. This company currently valued at $51 Million. It has $25MM cash and $2.23MM debt. Basically 50% in cash. So the business is selling for Enterprise value of $29MM. Before 2008, it used to trade close to $18 dollars. The average cash flow was close to $1.00 from 2002 excluding 2008, 09, 10 and average earnings was close to 60 cents. Obviously they did not do well in last three years in this market. Will it do well in next three years – I do not know and that is the reason the price is so low. We all know how competitive a retail business is. This is not a good business but selling very cheap. I think the downside risk is very low with 50% cash


Catalyst: Why suddenly interest in this company. Recently company started deleveraging. In a recent call, the CEO was excited to reduce their inventory Michael Price owns 15% of the stock.. They are not madly expanding and they are closing unprofitable stores. The best part was that there are more than 25% of stores that are coming up for lease renewals. I think they will renegotiate some of them and close the unprofitable ones. What Michael Price can bring to the table is – he will make sure the management does not squander cash and make sure they behave


Upside / Downside: If it generates $1:00 cash flow like what it did historically (very optimistic scenario), its value should be $8 - 10 with P/E 8-10 multiple. With additional $2:00 in cash, it should trade close to $10-12. Obviously the downside is close to $2:00 in cash. Do I think will it trade it at 12:00 in next 1 yr? Maybe not. Will it trade at $8:00 - $12:00 in 3-5yrs, yes I think it is possible. Please note that this is again not a good business but it has cheap valuation.  That is why this is called a cigar butt

Please note: I own a small quantity of these shares

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