Argan, Inc. (NYSE:AGX)

Argan (NYSE: AGX) has been beaten up recently due to lowering guidance on a weakened backlog – with that said, I believe the drop is a gross overreaction, which has left the stock trading at an incredible value.

How gross is Argan undervalued? Consider this – the company has over $23 in cash per share on their balance sheet, and absolutely no debt. Let’s imagine they do something with that cash (which they should), and buy back as many outstanding shares as they can afford.

Cash: $483.72 million
Price Per Share: $45.89
Shares Purchased: 10.54 million

The company could wipe out two-thirds of their outstanding shares – which means that their Enterprise Value to Earnings multiple is a staggeringly low 2.44x. Future Enterprise Value to Earnings is 4.64x – no matter how you pencil this out, this company is extremely undervalued.

Aside from this, management is well regarded, shareholder friendly, and they have performed well in the industrials space. They have tripled shareholder value over the last 5 years despite dropping over 40% in the past two months.

Why is this security trading at such a low valuation? I believe there are two reasons why investors are missing this:

1) The company is too small for hedge funds to capitalize on this – the company has a $700 million market cap and $207 enterprise value

2) Investors don’t realize the amount of cash this company is sitting on

I haven’t seen a company trading at such an extremely low price in years.

I am going to have to agree with other Fools here. This appears to be massively undervalued.