Free G. Willi

Value investors may want to have a look at G. Willi-Food (WILC) , a Nasdaq-listed Israeli distributor of specialty foods. The company is profitable, and yet it trades for about its cash balance, despite the absence of debt!

I have actually discussed WILC before, but since then the stock is down another 10% while the company has navigated through another couple of profitable quarters. The issues facing the company remain the same, however: revenue has been hit by pricing pressures due to national protests, and costs are on the rise thanks to food inflation.

Unless you are in the Thomas Malthus/Jeremy Grantham camp, you may see these as temporary margin pressures. In any case, the massive cash balance provides significant downside protection.

Perhaps the biggest risk facing long-term investors, however, is WILC's poor capital allocation decisions. The market is offering its owner/operators an incredible opportunity to buy back shares on the cheap, but the company is not taking advantage of the situation.

The only questioner on the company's latest conference call implored management to buy back shares, but received the standard "we always consider all options" response. Management appears focused on making an acquisition, even though the caller made the valid point that WILC cannot possibly find a more compelling value than its own shares at 2x earnings (ex-cash).

Despite the company's operators' stubborn desires for growth despite the incredible wealth-creating opportunity staring them in the face, they have a proven ability to create value. Book value per share has steadily increased from $1.97 to $6.44 over the last ten years, which is a feat to be proud of. Hopefully these gains are not squandered on a poorly-priced acquisition.

Disclosure: Author has a long position in shares of WILC.