A Negative Enterprise Value Screen: Bargain Stocks Trading Below Net Cash

In Brief

A Negative Enterprise Value screen is a bargain investing strategy which looks for companies whose cash is worth more than the total value of their shares and long-term debt. The idea is that these stocks represent a theoretical arbitrage opportunity whereby a suitable motivated acquirer (e.g. a Private Equity fund) could buy all of the debt and equity in a firm and use the cash to cover costs and keep the difference. Most likely to be relevant at times of market stress, it is a variant of the Net-Net strategy espoused by Benjamin Graham, albeit it focuses on cash, rather than other receivables. 

What is Enterprise Value? 

Many investors focus on market cap -  i.e. share price * number of shares - as a measure of the market valuation of a company (this is the figure that is used in P/E calculations for example). This figure is widely available but, in reality, it is not the best measure of a firm's valuation, as it ignores the impact of the capital structure of the company. It would treat a highly leveraged company in the same way as a debt-free company, despite the fact that the equity holders in the first scenario...