Telenav Inc (TNAV) Is Looking Good

However, this competitive threat does not necessarily place Telenav in a bad spot. Its cash hoard is its trump card: Relative to Telenav’s cash-to-market value ratio of about 66 percent, Garmin’s robust 20 percent ratio looks inadequate. If it deploys this cash properly, Telenav could yet unlock some value in its shares.

Possible Moves

Telenav has several options for deploying its cash hoard. Given its relative immaturity and the competitive nature of its industry, it might not be prudent for its board of directors to approve a regular dividend. However, it is possible that some sort of special dividend might be on the horizon. With just 40.6 million shares outstanding, the company could distribute a special cash dividend of $2 per share and keep over 60 percent of its hoard to fund a share buyback.

Then again, it is not inconceivable that the company could initiate a small dividend to give itself a leg up on its low-yield or no-yield industry peers. Assuming an average share price of $8 over the coming 12 months, a 2 percent annual dividend would cost the company about $6.5 million per year. If it can maintain a steady cash flow, this might be sustainable over the long term. However, it might force Telenav to dial back on essential new investments in the future.

Both of these options would undoubtedly boost Telenav’s share price on a temporary basis. Alternatively, the company could use its cash hoard to fund a significant share buyback. Assuming an average cost basis of $8 per share, a $50 million share buyback program would dispatch about 6.25 million shares and reduce the company’s float by 15 percent. This could boost the stock’s price by $2 per share and provide investors with a short-term return of 25 percent.

In sum, Telenav’s cash-rich balance sheet makes it an attractive target for short-term and medium-term investors. Although it faces plenty of challenges in an increasingly competitive space, it may be able to provide value for shareholders and create an in-and-out profit opportunity for savvy market players.

The article This Company Is Looking Good originally appeared on Fool.com and is written by Mike Thiessen.

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