Royce & Associates leader Chuck Royce (Trades, Portfolio) disclosed he made several changes to his portfolio on Aug. 31.
Specializing in small-cap stocks, the guru’s firm uses an active, bottom-up, risk-conscious and fundamental approach to find value opportunities among companies trading at a discount to enterprise value.
According to GuruFocus real-time picks, the investor exited his position in Echelon Corp. (ELON, Financial), reduced his holding of Shoe Carnival Inc. (SCVL, Financial) and expanded his Miller Industries Inc. (MLR, Financial) stake.
Echelon
Royce sold his 233,852 remaining shares of Echelon for an average price of $8.44 per share. The trade had an impact of -0.01% on the equity portfolio. GuruFocus estimates he lost 5.29% on the investment, which was established in the fourth quarter of 2011.
The California-based communications equipment company, which develops open-standard control networking platforms, has a $38.52 million market cap; its shares were trading around $8.48 on Monday with a price-book ratio of 1.79 and a price-sales ratio of 1.21.
The median price-sales chart shows the stock is trading slightly lower than its historical average. According to GuruFocus, the price-sales ratio is near a three-year high.
GuruFocus rated Echelon’s financial strength 6 out of 10. While the cash-to-debt ratio indicates the company has no debt, the Altman Z-Score of -10.35 warns it is in danger of going bankrupt as its revenue per share growth has been declining for the last five years.
The company’s profitability and growth fared even worse, scoring a 2 out of 10 rating. In addition to having a declining operating margin, Echelon’s net margin and returns are negative and underperform a majority of competitors. Two positive metrics are a Piotroski F-Score of 4, which suggests business operations are stable, and a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stock prices gain an average of 1.1% per year.
Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the company’s largest guru shareholder with 6.58% of outstanding shares.
Shoe Carnival
The investor trimmed his Shoe Carnival position by 34.15%, selling 392,404 shares for an average price of $44.46 per share. He now holds 756,557 shares, which represent 0.23% of his equity portfolio. According to GuruFocus, he has gained an estimated 62.44% on the investment since establishing the position in the third quarter of 2010.
The footwear retailer, which is headquartered in Indiana, has a market cap of $656.89 million; its shares were trading around $40.86 on Monday with a price-earnings ratio of 20.23, a price-book ratio of 2.10 and a price-sales ratio of 0.61.
According to the Peter Lynch chart, the stock is overpriced since it is trading higher than its fair value.
Shoe Carnival’s financial strength and profitability and growth were both rated 8 out of 10 by GuruFocus. Supported by no debt, the Altman Z-Score of 5.66 indicates the company’s fiscal position is sound.
Although the operating margin is in decline, it still outperforms 53% of industry peers. The company’s net margin and returns also outperform competitors. Shoe Carnival is also strengthened by a high Piotroski F-Score of 8, which means operations are stable, and a three-star business predictability rank. In addition to having consistent earnings and revenue growth, GuruFocus says companies with this rank typically see their stock prices gain an average of 8.2% per year.
With 4.7% of outstanding shares, Royce is the company’s largest guru shareholder. Simons, Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and Barrow, Hanley, Mewhinney & Strauss also own the stock.
Miller Industries
The guru invested in 40,227 shares of Miller Industries for an average price of $28.80 per share, boosting his stake by 3.65%. He now owns 1.78 million shares, representing 0.23% of his equity portfolio. GuruFocus data shows he has gained an estimated 39.11% on the investment since its inception.
The Tennessee-based auto parts company, which manufactures towing and recovery equipment, has a $313.08 million market cap; its shares were trading around $27.50 on Monday with a price-earnings ratio of 11.18, a price-book ratio of 1.46 and a price-sales ratio of 0.48.
Based on the Peter Lynch chart, the stock appears to be undervalued since it is trading below its fair value.
Miller Industries’ financial strength and profitability and growth both scored a 7 out of 10 rating from GuruFocus. Although the company has issued approximately $15.98 million in new long-term debt over the last three years, its interest coverage is able to support it. In addition, the Altman Z-Score of 4.33 indicates the company is financially stable.
Despite underperforming 51% of competitors, the company’s operating margin is expanding. In contrast, Miller’s net margin and returns outperform industry peers. The company is further strengthened by a moderate Piotroski F-Score of 6 and a one-star business predictability rank.
Of the gurus invested in Miller Industries, Royce has the largest position with 10.04% of outstanding shares. Hotchkis & Wiley, Simons and Robert Olstein (Trades, Portfolio) are also shareholders.
Performance
As of June 30, Royce’s $14.4 billion portfolio, which is composed of 1,213 holdings, is largely invested in the industrials sector, followed by the technology and consumer cyclical sectors.
The New York-based firm’s five largest holdings as of the second quarter are Vishay Intertechnology Inc. (VSH, Financial), Quaker Chemical Corp. (KWR, Financial), Minerals Technologies Inc. (MTX, Financial), UniFirst Corp. (UNF, Financial) and Helios Technologies (SNHY, Financial).
According to its fact sheet, the Royce Premier Fund returned 23.85% in 2017, outperforming the Russell 2000’s 14.65% return.
Disclosure: No positions.
