Northwest Pipe (NWPX), in the business of water transmission and tubular products, has not been able to file its two most recent required reports due to an ongoing internal investigation of certain accounting matters, including certain revenue recognition practices. The last report it filed was on August 7, 2009. Northwest’s CEO recently resigned on April 2, 2010, and the company’s President has assumed the role.
This is all evidence that points to either serious mistakes, real fraud, or negligence and/or ineffectiveness of the former CEO, or all of the above. Given all the above, the stock is trading near 52-week lows and might represent an excellent opportunity for purchase given the potential for forced or irrational selling due to the company’s inability to timely file its last two required reports.
Because investors have not seen a balance sheet or income statement for slightly over nine months, I feel there is an extreme amount of uncertainty surrounding the price of the stock and thus the company should be valued by tangible book value or on a liquidation basis.
From its balance sheet as of June 30, 2009, I calculate a tangible book value per share of $29.43. With a stock price of $23.24 as of last Friday, the stock is trading at a 21% discount. I will let my inquisitive readers find a liquidation value for themselves, but one could simply give a haircut to tangible book value and I suspect you would find that liquidation value per share is still slightly above the current share price.
Also, a useful way to reassure oneself about Northwest is to look at how its competitors have performed in the interim. If competitors have been performing decently, it might be safe to bet that Northwest has still been able to perform equally as well despite their ongoing investigation. Northwest’s competitors in the water transmission segment is Ameron International (AMN) and Mueller Water Products (MWA). In the tubular products segment, Northwest’s competitors are Valmont Industries (VMI), Lindsay (LNN), Tenaris (TS), and U.S. Steel (X).
I will most likely take a deeper look at Northwest Pipe. Investors can pick up amazing deals when uncertainty and/or forced and irrational selling.
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