Autobytel (ABTL): A Good Clunkers Play
Posted on August 7, 2009
With the extension of the cash for clunkers program, it may be a good time to consider shares of ABTL, an online automotive company whose shares now sit at $0.50. I’ve traded ABTL many times over the years, and the stock has several times rebounded strongly from severely depressed levels. It’s the type of “toxic” security that Wall Street has become quite fond of recently.
From a more fundamental perspective, at the current price level of $0.50, ABTL actually has a market cap of $23 million, despite having nearly $27 million in cash, and no debt. This negative enterprise value implies that the business is worthless. This may of course be a reasonable assumption, given how terribly managed ABTL has been in the past. Nevertheless, I believe the company’s revenues may have finally reached a nadir out at about $50 million a year. With a 30% or so gross margin, and negligible ongoing cap-ex needs, I don’t see how this business can actually be considered worthless.
Moreover, ABTL has cut expenses down significantly in the last year (though I still think they can easily cut some more). Therefore, as the cash for clunkers reignites optimism in the auto industry, and dealers begin to spend again on online advertising, ABTL could begin to report renewed top-line growth, which should lead to significantly improved profitability given the vastly reduced cost structure.
In reality, for good or for bad, I believe that some form of cash for clunkers will become a permanent part of the US economy, since it’s nearly impossible to turn off the free money spigot once it gets going. Given that view, it seems clear to me that ABTL’s business has bottomed and will grow from here. The odds of the business actually being worthless seem quite low, versus the probability of a significantly higher value given the improved industry outlook.
Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in ABTL. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
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