Drilling Down on Deswell Industries

Saj Karsan submits:

Deswell Industries (DSWL) manufactures plastic, metal and electronic components for equipment manufacturers. As one might expect, business has slowed as a result of the recession. Revenues fell almost 40% in 2010, but they have started to tick back up in recent quarters. Meanwhile, the stock price has fallen some 75% since its 2007 high.

As a result, the company trades for just $55 million, while it has a cash position of $33 million, zero debt and operating income of a combined $22 million in 2007 and 2008. In addition, the stock trades at a slight discount to the company's net current assets. Clearly, if earnings can return anywhere close to where they were before the recession, this investment should pay off handsomely.

Often, value investors can make money by investing in cyclical companies when things look bleak. But to be successful in doing so, they must be able to distinguish


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