NEW YORK ( TheStreet) -- I thought I'd seen it all when it comes to the far reaches of deep value, but I hadn't. I didn't think that the cupboard could get any barer than it had been in recent months in terms of the number of companies trading for less than net current asset value (net/nets), but it has. In the years that I've been researching, writing about and investing in net/nets, this is the first time that I can recall seeing only one net/net with a market cap in excess of $100 million. As a refresher, a company's net current asset value (or NCAV) is calculated by subtracting total liabilities (including preferred stock and minority interests if applicable) from total assets. If the result of that calculation is greater than the company's market cap, it is considered to be a net/net. In terms of valuation, such companies can be incredibly cheap, but they can also be damaged goods, appearing to be cheap but with no real prospects. The trick for investors, is to separate the wheat from the chaff -- not an easy task, and one fraught with risk.
Last month at this time, there were six net/nets including Systemax ( SYX), which I featured in an April column. SYX now trades at slightly more than its NCAV, at 1.07, having risen 8% since that column ran. That does not necessarily mean that SYX is now expensive; it just happens to have popped back above its NCAV.
In fact, I often peruse the ranks of companies trading at between one and two times NCAV, in order to see which names might become net/nets in the near future. Since many of these names are smaller and more volatile, market pullbacks tend to hurt them more than the bigger names, and it does not take a huge downside move to put them back in net/net land. SYX data by YCharts In case you are wondering, the only net/net that has a market cap of more than $100 million is none other than Trans World Entertainment ( TWMC), which operates 358 entertainment retail stores, primarily under the f.y.e brand. Many of these are mall-based stores, selling videos, music, video games and other entertainment products. Given the changing landscape of entertainment retailing, it is easy to see why the company has been banished to net/net land. For a time, the market believed that TWMC would disappear, as the stock traded for less than 60 cents in early 2009. TWMC data by YCharts