Net-net investing—a strategy that traces back to the legendary Benjamin Graham—has long been the domain of die-hard value investors. In a world obsessed with tech unicorns and meme stocks, net-nets seemed like a relic of the past. But as 2025 unfolds, economic uncertainty and sector-specific downturns have revived interest in these deep value plays. For Australian investors seeking overlooked bargains, understanding the net-net approach could unlock unique opportunities.
What Is a Net-Net, and Why Are They So Rare?
A net-net is a stock trading below the value of its net current assets—essentially, the company’s most liquid assets (cash, receivables, inventory) minus all liabilities. In accounting shorthand, it’s when:
- Market Cap < Net Current Asset Value (NCAV)
- NCAV = Current Assets – Total Liabilities
This formula is striking because it ignores intangibles and fixed assets, implying the business is so cheap that you could theoretically buy it, liquidate its assets, and walk away with a profit. In practice, net-nets are rare in developed markets like Australia, as most stocks don’t get this beaten down without serious challenges. But when they do emerge, they often signal extreme pessimism—and, occasionally, opportunity.
Why 2025 Is Seeing a Net-Net Resurgence
Several trends are converging to make net-net stocks worth a fresh look:
- Sector Shakeouts: Australian small caps in sectors like mining services, retail, and biotech have faced brutal selloffs after pandemic-era booms faded. Some now trade below liquidation value.
- Interest Rate Volatility: As the RBA holds rates higher for longer into 2025, leveraged companies are under pressure. Those with strong balance sheets and surplus current assets are standing out.
- Corporate Governance Crackdowns: Tighter ASX regulations have prompted companies to clean up their books, making balance sheets more transparent and helping investors spot genuine net-nets.
- Global Value Rotations: International value funds are increasingly scanning Australian microcaps for deep value plays, including net-nets, as US and European markets look fully valued.
Real-world example: In early 2025, XYZ Mining Services (ASX:XYZ) was trading at a market cap of just $18 million, despite holding $25 million in cash, $7 million in receivables, and $6 million in inventory, offset by only $12 million in total liabilities. Its NCAV was $26 million—meaning the company traded at a 30% discount to its net current assets. After activist investors took notice, the share price rebounded by 40% over three months as the market repriced its liquidation value.
How to Spot—and Survive—Net-Net Investing in Australia
Net-net stocks are not for the faint-hearted. Many are in distress, facing operational headwinds, or have governance issues. But for disciplined investors, they can offer asymmetric risk/reward profiles. Here’s how to approach the hunt in 2025:
- Screen for NCAV Bargains: Use financial data platforms to filter ASX-listed companies where market cap is less than 100% of NCAV. Focus on microcaps and unloved sectors.
- Check the Balance Sheet Quality: Dig into quarterly filings to verify that current assets are truly liquid (e.g., cash, receivables—not just slow-moving inventory or dubious ‘other’ assets).
- Assess Liabilities and Off-Balance Sheet Risks: Scrutinise notes for contingent liabilities, legal risks, or off-balance sheet debts that could erode asset value.
- Look for Catalysts: Signs of management buybacks, asset sales, activist investor involvement, or sector recovery can help unlock value in net-nets.
In 2025, net-net investing is easier than ever to research, with tools like ASX’s new small-cap data portal and enhanced quarterly reporting requirements. But patience, due diligence, and a willingness to hold through volatility remain essential.
The Bottom Line: Are Net-Nets Worth Your Attention in 2025?
For most investors, net-nets are a niche pursuit. But for those willing to look where others won’t, they offer a contrarian path to value—especially in times of market stress. As Australia’s small-cap landscape evolves and regulatory clarity improves, expect more investors to rediscover this classic strategy. Whether you’re a die-hard Graham devotee or just hunting for hidden gems, net-net stocks are worth a spot on your radar in 2025.
