Over the course of two decades in the professional investment business, I’ve stumbled onto stock ideas purely by accident maybe a couple dozen times. Sometimes I’m looking for one thing and find another. More than once, I’ve typed in the wrong symbol.

That happened again recently. And after some digging, I decided that I had had to write about my find.

There’s a better than decent chance that at some point, while growing up in the United States, your mom probably used Scott’s Liquid Gold furniture polish at least once. Here’s a television commercial from the 1970s to jog your memory. 

Think the brand is dead? Nope. Owned by some gigantic consumer products mega-cap like Procter and Gamble (NYSE: PG)? Nope. It’s still made in Denver, CO where it was invented at the turn of the 20th century. The company is still owned by the family that bought the original formula from inventor Lee Scott for $350 (not a misprint) in 1951. 

#-ad_banner-#Even more remarkable, the company, Scott’s Liquid Gold, Inc. is publicly traded (OTC: SLGD). It’s a tiny company with a consolidated market cap of barely $25 million. Typically, I don’t dive into the extremely shallow and often illiquid microcap pool, but I am this time. Here’s why…

The underlying metrics of the company are surprisingly attractive. Annual revenue has grown at a compounded annual rate of nearly 18% over the last five years. Not bad for a sleepy old brand with just 0.04% market share in its segment. EBITDA (earnings before interest, taxes, depreciation and amortization) has grown at an astonishing 57% annual clip for the same stretch. The biggest jump has come in the last year alone with sales jumping from $29.2 million to $35.2 million.

This leap can mostly be attributed to the company’s acquisition of shampoo brands Prell, Denorex, and Zincon from Ultimark Products for approximately $9.1 million. The investment is paying off. Annual free cash flow has doubled from $3 million to $6 million.

Wait? A furniture polish company buying health and beauty brands? Over twenty years ago, Scott’s Liquid Gold developed a line of skin care products under the Neoteric and Alpha names. Knowing this, the shampoo purchase makes total sense.

Good growth numbers, and an intelligent acquisition strategy… — Does this mean the company is on a rocket trajectory to become the next consumer brand roll up à la B&G Foods (NYSE: BGS)? Probably not.

The company is still run by the Goldstein family who bought the Scott’s Liquid Gold brand back in 1951. Jerry Goldstein ran the company until his death in 2000.  His son and current chairman and CEO, Mark Goldstein, has been with the business since 1978. The median age among the company’s top management and independent directors is 60 years old.  Is there a succession plan? I don’t know. If I had to guess, I would have to say “no.” 

So, what does the future hold for Scott’s Liquid Gold? My best educated guess would point towards a sale. 

The stock trades at 60 cents on the dollar to actual sales and right around its book value (1.3 times). Return on equity sits at a healthy 20.6%. Those types of numbers and the company’s tiny market cap make the company attractive for an easy cash buyout, most likely private equity or a growing, publicly traded, brand roll-up.

Risks To Consider: When discussing microcap stocks, it’s hard to know where to start. The stock trades VERY thinly. Average daily volume is around 7,000 shares. If you plan to buy, use LIMIT orders only. This kind of idea is for cowboys only — investors with a high risk tolerance. If you have a low appetite for risk, don’t bother. There’s no dividend. Don’t play with money you need (no one should do that anyway). Don’t expect the stock to triple or quintuple. This is a speculative call.

Action To Take: Surprisingly, there was a decent amount of available data to research this stock. Based on my review, a future sale of the company makes sense. The Goldstein family and those closely associated with the company own more than 32% of the outstanding shares. With its impressive numbers, decent brand recognition and aging bench, a sale seems likelyit seems like an enticing candidate. 

Shares currently trade around $2.30. A lowball, bare minimum takeout price of $3.50 would bring the price to sales ratio to even. That would result in a 52% gain based on the current share price. The premium could be much higher.

Editor’s Note: Investors: are you using this stock indicator? The stocks it identified are beating the S&P 500 by 3,200% a year… though most brokerage sites do not provide it. Full access here.