When Versar (Amex:VSR) announced lower earnings and issued disappointing guidance last month, I was a seller.  Now, with shares trading down to $2.35, I’m starting to buy again.

Get trend analysis for VSR from Ino.com

There are six things I like about Versar:

1.  Even with the disappointing results last quarter, Versar remained profitable.  It earned $565,000, or $0.06 per share.  Annualized, that’s $2.6 million, which gives VSR a forward P/E around  7 once you back out its cash.

2.  The $7.72 million in cash on its balance sheet gives Versar operational flexibility.  Versar will not be forced to roll over debt or do a dilutive offering.  Plus, Versar could use the cash to snap up acquisitions on the cheap.

3. The company trades at an extremely low price-sales ratio.  According to Yahoo!, Versar’s enterprise value-to-sales ratio (which backs out the cash for a more accurate reading) is a meager 0.13.  That means that any improvement in margins could drive substantial bottom-line growth.

4.  Management has set expectations low.  Underpromise, over deliver always is better for investers than the other way around.

5.  Backlog is strong.  In the last quarterly report, Versar announced a funded backlog of $99 million.  And its not sitting still.  Last week Versar announced a Middle Eastern-joint venture that will start operations in July.  Versar expects the joint venture will have $6 million in contracts by that time.

6.  Technically, though the entry is not perfect, it looks like Versar is trying to put in a double bottom.  Note that this interpretation is only valid as long as the $2 mark holds.

DISCLOSURE: Long VSR.

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