Why I Bought Hanover Foods

Price	$ 122.00
Market Cap	$ 91.5 M
P/E (2012)	6.7 x
Div yield	0.9 %
P/TBV	0.45
ROE	6.2 %
LT Debt/TBV	0.11

Recently, I bought shares in an obscure U.S. food company I had known for about a year. I first heard about it from Oddballstocks — one of the best investment blogs out there, by the way.  The company is Hanover Foods (OTC:HNFSA). The company is not really public so it doesn't have to file with SEC. I took a while to invest with the company because I couldn't get access to their financials. I also wasn't sure how I could get access to the financials once I became a shareholder.

Hanover Foods makes the food products shown above. I do not ever recall buying their products or even seeing it at the grocery store. But I am not a person that studies a companies products when I invest. I focus on financial statements to make investment decisions.

Hanover Foods was a pretty straightforward decision once I had access to the financials. The company like many of my smallcaps, is in a staid business, trades at less than ten times earnings, and less than tangible book value.

In addition, the company is "dark", which could be a plus as well as a minus. When a smallcap company is dark it is under the radar of most investors. This could mean I can build a position at a low price. But of course someone can argue that the company can stay that way indefinitely. But I have faith in the markets and all securities will reach their fair values sooner or later.

Given the great numbers for the company the reader may ask what is the catch, other than the fact that the company is an obscure smallcap. Some internet sources especially Oddballstocks have explained the ownership strife and analyzed the company here and here. The company was founded by Harry Warehime. His descendants are still in control of the company. His grandson John Warehime is the current CEO, and half the board seats are held by the Warehimes. However, the family members are bickering incessantly. And some of their dirty laundry is even documented in lawsuits. From what I can gather there are people who second hand knowledge of the family and for them it appears that issue is about control and not money. As a minority shareholder, I want to ensure that those in control do not cheat the minority, and that the family bickering does not destroy the company. Regarding the first point, the family does not seem to be united so they can't be working together to take away value from minority shareholders. And regarding the second point, this has been going on for decades and in that time the company has grown earnings and equity. For details, the reader can refer to Oddballstocks.

A final issue is the lack of transparency regarding the actual diluted shares out there. The company has various stock option and incentive plans. But from what I have read, it appears to be in the range of 700-800k. So I'll use the mid-point: 750k.

Overall, this company is pretty simple and straightforward and I trust others' research. However, because this company isn't that transparent, I don't have a huge position. But if the reader wants to invest in this stock, she should do her own research! Don't do what I did, which is to rely on information in blogs like this one.