I continue in my search for “hidden gems” in the stock market. However, most “undervalued” companies that show on my screener have issues once you dig a bit deeper. Taitron Components (TAIT) is one such company that looks decent on the surface, as it is has a dividend yield of 5.3% and a 2019 P/E ratio of 24x. However, there are certain factors that make this an investment to avoid.
Just a brief background on the company – Taitron Components is an ODM (original design manufacturer) supplier for custom-made small products for electronic equipment manufacturing companies. The company focuses on higher-margin ODM projects where its engineers work with its customers to design the parts they need. The company also has an electronic component distribution business, which is a legacy business it has slowly shifted focus from.
Based on disclosures from the 10-K, the company’s revenues are highly concentrated, which constitutes