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Zoltek Companies, Inc. Message Board

  • statstats statstats Feb 1, 2013 5:57 PM Flag

    Why I am holding ZOLT

    The drop in sales is directly related to the expiration of the production tax credit, particularly since the law required that the turbines be "in service" by the end of the year, and there is a 60-90 day lead time in making the blades before the turbine is in service. I see this as a one time aberration, and all wind companies were getting hit hard at the end of the year. This is not the company's fault. I wish Congress had exercised more foresight in avoiding such volatility. Now that the production tax credit has been restored, they say they "already have seen a return to more normalized sales trends in January." (from the earnings PR.) The new law does not require that the turbine be in service before the end of the year, so orders will flow smoother up to the new deadline. People criticize Rumy, but he basically built this company. They carved out a niche and created a market, and now they are a leading producer, starting with the raw material, continuing on to pre preg and winding, and they are moving into entirely new segments. Carbon fiber is more a technological product than a commodity, due to the skill in winding and handling the pre preg, not to mention the skill in creating prototypes for new markets.
    The points that matter to me are:
    1. This company has good margins, more in line with a technology company than a commodity company. Better margins should command a higher multiple. That is, a PE of 10 might be OK for a commodity company, but the same PE could be low a for a technology company with good margins. Good margins are worth a premium, because for each dollar of additional sales, profit will improve much better than with a company having lower margins. In the quarter ending June, 2012, sales were 48,078,000, net profit was 5,566,000, which means they were bringing 11.57% of sales down to the bottom line as profit. The quarter ending 9-12 had sales of 44,199,000, and net profit of 4,245,000, for a net profit margin of 9.6%.
    You can see how this affects the break even point. In the last quarter, they were still profitable even with a big drop in revenue. Many companies with worse margins would have faced a net loss with a big hit on sales. If they can be profitable on sales of 35.9 million, and if the last quarter was the low point of revenue, I do not see them going back to losing money.
    2. Wind is picking up again with the restoration of the production tax credit, and they also sell internationally. I see good potential from growth in wind. The coming generation of offshore turbines will have HUGE blades.
    3. ZOLT is moving into car parts, due to coming requirements for higher fuel efficiency. This has huge potential, considering the size of the vehicle industry.
    4. Zolt is moving into tubing for drilling.
    5. ZOLT is below book value. Yahoo reported book value at $8.76 before the last quarter, and ZOLT reported .09 per share profit, so the book value now should be around $8.85 per share. Profitable companies rarely sell for less than book value, and many companies sell for twice book value or more. Book value is not the only criteria, but it provides a safety net for your investment. If they can be profitable on sales of 35.9 million, and that was the low point, I see continuing profitability, which means book value will continue to grow.
    6. ZOLT has a healthy degree of insider ownership.
    7. I like the relatively small size of the company. Plug in an extra $50 million of revenue in a small company with good margins and you can see some dramatic results.
    8. Due to the relatively small size, the niche they occupy, the technology they control, the stock price below book value, and the good potential in the areas of wind and autos, I can see this company being eyed as a buyout candidate. I am not trying to start any rumors. I am just saying that I see value in this company, and that value may be apparent to others and it limits the downside for me.

    Considering the expectation of improved sales going forward along with continuing profitability, and a price below book value to provide a safety net, I see limited downside compared to significant upside potential from growth in wind, vehicle components, and tubing.

    Sentiment: Strong Buy

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ZOLT
16.730.00(0.00%)Feb 27 4:00 PMEST

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