Greenbackd

We’ve decided to exit our position in Network Engines Inc (NASDAQ:NENG) at its $0.56 close yesterday. We opened the position on January 13, 2009 when it was trading at $0.38, so we’re up 47.4% in about two-and-a-half months on an absolute basis, which is a pleasing outcome. The S&P500 Index was trading at 870.26 when we opened the position in NENG, and closed yesterday at 832.86, which means we’re up 51.7% on an relative basis, which is also a good outcome.

We’ve started following NENG (see post archive here) when it was trading at $0.38, which gave it a market capitalization of $16.5M. We initially estimated the company’s liquidation valuation to be around $25.5M or $0.59 per share, but we reduced that estimate to $23.8M or $0.55 per share after reviewing the December 10Q. At its $0.56 close yesterday, the company has a market capitalization of $24.2M, which exceeds our estimate of its liquidation value. We were attracted to the stock because Trinad Management had been pushing the company to “immediately [implement] a share buy-back program.” The company initially demurred and saw its stock sink to all-time lows, but has recently reinstated that stock repurchase program.

Although the company has indicated it will undertake a $5M stock buyback, which will likely push the stock price up further, the stock has reached our estimate of its liquidation value, so the buyback will not increase the per share liquidation value at this level. We’re also mindful that NENG is a perennial net net, and at higher prices than presently prevail, so we think there’s a good chance NENG could be back in net net territory again in the not-too-distant future.

[Full Disclosure:  We do not have a holding in NENG. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]