COMPANY SPOTLIGHT: Dynamic Materials
Small Cap Phenom
- The Good: Strong product demand, one competitor bought out.
- The Bad: Stock has run up, valuation is high.
- The Beautiful: Company is growing in all the right ways.
December 28, 2007 - Dynamic Materials Corp. (BOOM-NASDAQ) has an explosive personality when it comes to working with metal. The company (formerly Explosive Fabricators) uses explosives to metallurgically bond, or "clad," metal plates (usually joining a corrosion-resistant alloy and carbon steel). Clad metal is used to make heavy-duty industrial pressure vessels and heat exchangers. The company also produces components using more traditional metalworking techniques such as machining, rolling, and hydraulic expansion. DMC's AMK Welding subsidiary machines and welds parts primarily for the commercial aircraft and aerospace industries.
The stock is up over 40% in 3 months thanks to a great third quarter earnings report. Earnings jumped almost 100% compared to the same quarter the previous year, going to 58 cents a share vs 30 cents. Next quarter look for 59 cents a share, for the year, $2.03. That's well above the 2006 report of $1.58. In 2008, the forecast is for $2.50 a share. For the next 5 years, analysts predict 29% a year improvement in earnings, on average on sales that should grow by 21% a year, on average, in the same time period. In the last year, sales went from $113.5 million to $155 million. Next year expect $190 million.This is a still a small company with a market cap of $725 million and 12.148 million shares. That means volatility can be severe, and the ride can be very bumpy if you own the stock. It also means many institutions haven't bought it yet as many are required to wait until a stock has a $1 billion market cap before it's elgible for them to buy. There's a backlog of orders at BOOM. At the end of the third quarter, it was $77.1 million compared to $68.5 million a year ago at the same time. U.S. capacity to fill those orders will double with the opening of a Mt. Braddock, PA plant. One concern here is that the military is increasing its carbon steel orders, taking priority over commercial demand. However, the company faced the same problem throughout 2007 and did very well. BOOM acquired DYNAenrgetics for $96.6 million. It makes clad metal plates. It had revenues of $73.3 million in its latest fiscal year which ends in September. Those new sales should boost BOOM's top line by 50% next year while the earnings benefit has yet to be determined. Analysts believe the profit margin at DYNAenergetics is lower than BOOM's, but think the purchase will benefit because it takes one competitor out of the market and increases capacity. Some numbers: There's a small dividend of 15 cents, paid once a year. Return on Equity was 33.5% last year with expectations of 25% this year and 23% next year. Net Profit Margin was 17% last year with a guess of 16.2% this year, then going to 17.6% next year. There is no long term debt. Current assets are almost 3 times current liabilities. Dynamic Materials has enjoyed a great run. Maybe it's just getting started. It certainly is small enough to grow. But it only has 12 million shares outstanding so that makes it hard for institutions to buy a meaningful amount of stock. Most likely the company will consider a secondary offering some time soon to raise capital for more expansion and have more shares available to trade. If that happens, the stock may pull back a little to make it more attractive to buyers. But then again, management may be satisfied with fewer shares and strong earnings. If they are, they'll be the exception. Their record suggests management is anything but reluctant to grow. - Company Web site: www.dynamicmaterials.com - Ted Allrich |
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