This 1 Tiny Share May Be A Hidden Gem

With its market capitalisation of S$122.5 million at its current share price of S$0.74, luxury watch retailer Cortina Holdings Limited (SGX: C41) can be considered a tiny company. It may also be a hidden gem.

And, that’s because shares of Cortina look very cheap at the moment. Based on the company’s latest finances (as of 30 September 2015), Cortina has current assets of S$265.8 million and total liabilities of S$133 million. This gives the firm a net current asset value of S$132.8 million (total current assets minus total liabilities).

In investing parlance, a net-net stock is defined as one that has a market capitalisation that is lower than its net current asset value. As you can see, Cortina fits the bill.

A net-net stock can be thought of as a potential bargain opportunity because investors are getting a discount on a company’s current assets (things like cash and inventory) net of all liabilities. Meanwhile, the stock’s fixed assets (things like real estate, factories, and long-lasting equipment) can be had for next to nothing.

That said, net-net stocks are not without risk. They can be deeply troubled businesses – which explains their low valuations. Moreover, Professor Bruce Greenwald had shared in a chat with my colleague Stanley Lim and I that his impression of net-net investing in Asia is that it hasn’t done so well. Professor Greenwald is from the Columbia Business School and is a noted authority on the subject of investing.

So, investors should note that a deeper study is needed to determine if Cortina is indeed a legitimate bargain or just a value trap. All I’ve done here is to merely provide a useful starting point for further research.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Chong Ser Jing doesn't own shares in any companies mentioned.