LOS ANGELES (TheStreet) -- Since we first profiled Daily Journal(DJCO) - Get Report in October, the stock has risen 23%, doubling the pace of the Russell 2000 Index. The original thesis for this company still holds and TheStreet Ratings model still sees potential in this tiny publisher in a land of dinosaurs.
Younger readers rely on the Internet for news and information instead of printed newspapers. It's a medium in which newspapers have a presence, but have not figured out how to monetize. As a result, newspapers are dying a slow death as their costs overwhelm their profits. Behemoths such as the
New York Times
may go extinct soon if they can't reverse their downward trajectory.
Los Angeles-based Daily Journal seems to be bucking that trend. This tiny publisher has a market cap of $97 million and an average trading volume of a mere 1,700 shares per day. There is little action in this stock, creating potential for big gains as more investors discover this gem.
Daily Journal has avoided the pain that other news organizations have by targeting specialized content areas. Most publications it produces focus on California and small groups, such as lawyers and communities. This tactic has led to a profitable mix because local news coverage is weak online. The company also provides information services and software to courts and other agencies.
Operating results for Daily Journal have been phenomenal. A return on equity of 19.4% with a net margin of 20.7% leaves the New York Times and Washington Post in the dust. In addition to strong operating results, the company lacks long-term debt and has a current ratio of 3.1, which suggests that Daily Journal is on strong footing.
Helping to support this financial stability is an increasing cash balance and an investment in marketable securities that has risen during the bull market of 2009. Daily Journal has over $3 million in cash and another $59.8 million in short-term investments. The financial situation at Daily Journal is nearly picture perfect. Investing in a company with no debt and such fantastic returns is not a typical opportunity, especially in an industry like newspapers, where financial instability is ubiquitous.
Because the company is so thinly traded, any investment could push the market price higher, making it difficult to get in at a price close to the current quote and a sale could have the opposite effect. This is a small price to pay for such as solid company. We rate the company "buy." The stock has the 16th-highest rating among companies we cover.
-- Reported by David MacDougall in Boston.
Prior to joining TheStreet Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.