They say every cloud has a silver lining. For shareholders of Pure Wafer, a small-cap electronics firm which lost a factory in a major fire last December, that’s certainly true.

Pure operates in a fairly competitive sector, recycling silicon wafers for semiconductor manufacturers in order to reduce costly waste. Despite a successful turnaround and refinancing, the shares were on a downward trend last year. That was, until 22 December, when a fire destroyed the firm’s Swansea plant.

Since then, Pure Wafer stock has almost four-bagged, rising in value by 285%. The reason for this dramatic turnaround is simple. Rather than using the $90m insurance payout received after the fire to build a new factory, Pure Wafer has decided to return most of this money to shareholders.

Trading below net cash

At the end of June, Pure had net cash of $85m and no debt. This equates to about 190p per share, which is slightly more than the current share price of 180p.

The firm plans to return 140-145p to shareholders in the not-too-distant future, which should leave cash of perhaps 45p per share.

Pure Wafer also has another factor in its favour. It has a second business, in Prescott, Arizona. This remains in operation and is profitable.

In summary, Pure Wafer shares currently trade slightly below net cash, with a profitable business thrown in for free.

Rather impressively, Stockopedia’s algorithms appear to have picked up on this opportunity. The company is the biggest StockRank riser of the last month. Pure Wafer’s StockRank of 99 is 44 places higher than it was 30 days ago. It has the high quality and momentum profile of a turnaround stock.

The question for shareholders and potential investors is whether there might be more gains to come, or whether it is time to take some profits.

Pure value play

Pure Wafer only qualifies for one Stockopedia Guru Screen, the Negative Enterprise Value Screen. However, this is a deep value screen and is worth a closer look.

Enterprise value is a valuation metric calculated as market cap minus net cash. As I write, Pure Wafer’s EV is -£2.4m.

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In theory at least, this presents an arbitrage opportunity. An investor could potentially buy the firm’s equity and debt and still be left with…

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