Deswell Industries, Inc. (NASDAQ:DSWL) Too Cheap To Ignore

A lot of traders in the investment community are talking about Deswell Industries, Inc. (NASDAQ:DSWL), the manufacturing company. Andrew Walker, CFA and Bram de Haas among other analysts from Seeking Alpha, Adrian Mccoy from Kgazette, Darrin Black from Weeklyregister and many others have assessed the company. The reasons? DSWL is extremely undervalued. Its book value per share, revenue per share, cash per share and some other metrics that we will see later on in this article clearly exhibit it. Have a look at the impressive growth of the share price in 2017:SourceIn our opinion, even after the long upward trend, the share price remains undervalues the company. In this article, we will let you know why.Business

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DSWL's business objective reads as follows:

"Deswell manufactures injection-molded plastic parts and components, electronic products and subassemblies, and metallic products for original equipment manufacturers ("OEMs") and contract manufacturers. The Company produces a wide variety of plastic parts and components used in the manufacture of consumer and industrial products; printed circuit board assemblies using surface mount ("SMT") and finished products." Source

The company was founded in 1987 and is headquartered in Macao, China. According to the company's website, it has built a reputation for its quality and excellence. DSWL manufactures not only its own products, but also provides different services to clients. Its services include "design for manufacturing, plastic injection molding, electronics assembly, logistics and aftermarket support." All the services offered are ISO 9002 certified.Not a lot of news but sound financial situationThere are two things that the market may not appreciate in DSWL. Firstly, the company is Chinese. And secondly, it does not release a lot of news about its operations. In the year 2017, the company only put out the financial statements for the last six months. So, we will assess those. The following is a photo from a presentation. It is a very good picture of the company. Have a look:

Company presentation

On June 12, 2017, the financial results for the first part of the year were put out. The sales were $23.8 million, which represents an increase of 14.2% compared to the same period in 2016. In addition, the gross margin increased to 18.9% as compared to the same period last year. The company explained that the increases were due to "increased production efficiency of labor, introduction of robotic assembly arms, and decreased subcontracting charges" in the plastic segment, besides "better raw materials management and the implementation of lean manufacturing initiatives, coupled with production automation" in the electronic segment. The net income returned was $0.7 million for a period of six months ended March 31, 2017. This is good news, as the company reported a net loss of $1.5 million in the same period in 2016. The CEO explained the results:

"We’re pleased to have driven solid revenue growth and significantly improved margins in the second half of 2017, with increases in both our plastic and our electronic segments. We saw increased orders in our plastic segment related to office equipment and motor vehicle components and in our electronics segment, increased orders for professional audio equipment outpaced a decline in sales for home entertainment products." Source

Sound Financial Situation and Market Participants buyingAll the analysts are talking about the financial statements and how the market is not recognizing the value hidden on the balance sheet. Check the following financial figures:- Book value per share: $4.80- Cash per share: $1.88- Long term debt: $0With that in mind, now note that the share price on the open market is $2.33. What does it mean? It means that shareholders could buy the whole company, stop the operations to sell its assets and make interesting returns. If we we accept that all the assets can be sold for its book value, the returns would be equal to 109%. Additionally, the share price is almost equal to the amount of cash on the balance sheet. In addition, the revenue per share is $2.78.Are we the first market participants who found this gem? No, some other people in the market declared purchases long time ago. Here are some of them: Wedbush Securities Inc, Morgan Stanley, Arlington Value Capital, LLC, RBF Capital, LLC and CALPERS (California-Public Employees Retirement System. In addition, 24% of the company is owned by insiders. These are directors of the company, so they believe in the future of it.ConclusionWhen many analysts assess the same stock, something is usually going on. In this case, the stock is trading extremely undervalued. The share price is below the book value per share and close to its cash per share. Furthermore, market participants have been buying the stock in the past; insiders are buying too. How can we explain it? The company is Chinese and does not report a lot to the market; that's all. In our opinion, our subscribers will do good by following this company closely. It is a strong value play.We will be updating our subscribers as soon as we know more. For the latest updates on DSWL, sign up below!Image courtesy of Andy Pixel via FlickrDisclosure: We have no position in DSWL and have not been compensated for this article.