Sommer Company has experienced the following results over the past three years.
|
Year |
1 |
2 |
3 |
|
(In thousands) |
|||
|
Net income (loss) |
$2,000 |
$10,000 |
$8,000 |
|
Depreciation and amortization |
9,000 |
11,000 |
14,000 |
|
Net cash flow from operating activities |
13,000 |
15,000 |
18,000 |
|
Net expenditures for plant assets |
9,000 |
6,000 |
5,000 |
The price of Sommer’s common stock has declined steadily over the three year period. At the end of year 3, it is trading at $10 per share. Early in year 4, Bottom Fischer, who specializes in taking over poorly performing businesses, has offered shareholders of Sommer $18 per share for their stock. Why would Fischer be willing to pay such an amount? What does he see in the company that suggests value?