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Avalon Holdings Trading Low And Jumping On Oil Boom

In Peter Lynch’s bestselling book , One Up On Wall Street, he comments that the boring businesses are generally the ones that make the best investments. In addition, Lynch believed that boring businesses with a niche or specialist product are almost perfect from an investment perspective. This is why I’ve decided to take a look at Avalon Holdings Corp.

Avalon Holdings Corp NYSEMKT:AWX provides hazardous and nonhazardous waste brokerage and management services as well as landfill management services. The company offers its services to industrial, commercial and government customers throughout the United States. In addition, the company operates and manages golf courses, fitness centers, tennis, spa services, dining, and banquet facilities, as well as a travel agency. The company has a market capitalization of $19.3 million and an average daily volume of 3,650.

Also see: Springleaf Holdings and the re-emergence of sub-prime consumer lending

Balance sheet

Looking at the balance sheet, it would appear that Avalon Holdings Corp NYSEMKT:AWX is a fiscally stable company. Current assets cover current liabilities 1.8 times and debt is almost non-existent. Debt-to-equity is only 1%. Actually, net-cash works out at around $2.10 per share.

The company’s book value per share is $10.7, which means at current prices Avalon is trading at a price-to-book value of 0.5.

Avalon Holdings performance

Due to the fact that Avalon Holdings Corp NYSEMKT:AWX is a service company, profit margins are razor thin and operational gearing is high. Indeed, for full-year 2012 the company’s EBITDA margin came in at only 2.5%. This means that depreciation has a huge effect on the company’s overall profitability. Including depreciation and amortization, the company reported a loss for the year.

Also see: Have You Got an Edge over the Markets?

Stripping out non-cash items, Avalon Holdings Corp NYSEMKT:AWX was cash flow positive during 2012 and has been throughout the first nine months of this years. The company’s cash balance expanded 25% year-on-year through to the end of the fiscal third quarter.

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