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By May 7, 2013 5 Comments

Taylor Devices Trading At a Bargain

58-year old industrial maker, Taylor Devices (NASDAQ: TAYD), announced its third quarter financial results few weeks ago. Net earnings during the period reached $622,515, an increase from the previous quarter’s net earnings of $514,213. This brings the first nine months earnings to almost $2 million, significantly higher by 50 percent compared to the same period last year. Revenue during the nine month period was also slightly higher at $19.58 million.

The company is on a roll. It has consistently brought in strong results over the last few quarters. For instance, it reported net earnings of $769,361 in the second quarter, also significantly higher than the previous quarter’s result of $413,741. The strong profitability is attributed to the expansion of its manufacturing facilities, which was first announced in 2011. The construction on two of its three new buildings has already been completed. It expects the third building to be finished within the year. This is an indication that management is confident that demand for its products will continue over the next few years.

Taylor Devices Trading At a Bargain

Taylor Devices Trading At a Bargain

Analysts have no estimates on the company. This implies that the company is still under the radar of investors. Looking at its historical performance, investors can assume that it will continue to exhibit solid profitability. For the last five years, sales have grown by 11.94 percent. This is higher than the industry’s growth rate of 2.87 percent. The steady revenue growth translated to even better five year net profit growth of 28 percent. The company has not paid dividends for the period as it reinvests its cash in the business. Thus, capital spending has grown by 44 percent a year for the last five years. Its firm order backlog is quite healthy at $11.7 million in 2013, assuring investors of a clear revenue visibility for the year. Over the last 12 months, it has operating cash flow of around $2.37 million and cash of $355,300.

The stock trades at 9.69 times earnings and 1.25 times book value. At the current valuation, the market assumes no growth for the coming years. In contrast, its relative peers have premium valuations. ITT Corporation (NYSE: ITT) has an earnings multiple of 20 times and 3.50 times book value. Dana Holding (NYSE: DAN) trades at 12.38 times earnings and trades at 2.30 times book.

The reason for the stock’s undervaluation is the lack of coverage it receives from investment houses. Based on the recent shareholding structure, institutions hold 7.20 percent of the company, while insiders have a 6.51 percent stake. If you look at the short ratio over float, it has around 0.20 percent. This means that this is a clear case of lack of buyers rather than distressed sellers. Investors seeking value and growth may want to add an all-star performer, Taylor Devices, to their portfolios. 

Meiko Acebo

Written by

Meiko is an CPA and Equity Analyst based in Manila with diverse experience in various industries and sectors. He is an ardent follower of the value investing principles of Warren…

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