You make some valid and interesting points. However, I don't understand why you consider it to be a likely LBO. Don't the Reed's own most of the stock? Why would they spin it out of Mestek only to buy it back again?
I am glad there's a continuing discussion on the merits of OFLX. At the risk of being repetitive I'd like to make the following points:
1. Historical performance: While OFLX had a very good historical performance, investing is done prospectively, not retrospectively, and I don't believe the future is as bright for OFLX as the past due to cyclical, seasonal and market maturity issues all elaborated earlier on this post.
2. Coke vs. OFLX: Comparing OFLX to Coke is a stretch in my mind, as the risk factors - business, operational, financial, market, etc. are way more pronounced in a micro-cap company than in a large cap company.
3. Capital Gains: I'd rather pay tax on the gain than lose the gain, it�s that simple.
4. LBO/Acquisition: for many reasons, while possible (anything is possible) an acquisition is not likely for many reasons � low economic returns due to the high current price, lack of cost synergies, top management�s golden parachutes, etc. I also don't believe in buying a stock the upside in which will come from the prayful belief that someone will come and buy the company - that can be the icing on the cake but not the underlying value premise of the investment thesis.
I am not going to comment on the �profound� analysis in the Motley Fool article which points to the latest insider purchases and says that the 52-week stock appreciation for OFLX as of 10-3-06 was 18%, ignoring the latest slide in price of over 25%. I am also not going to comment on the fact that while mentioning $8.6 million in cash on OFLX�s balance sheet, there�s no mention of the $11 million payment the company needs to make following the recent legal settlement � this clearly was not in the Motley Fool analytical tool kit.
But the comments on insider buying are more interesting, so the question is �who�s [really] buying now� and why? To put in perspective again the recent purchase of 1,000 shares by OFLX�s CEO � his only open market share purchases since the spin-off in 2005 - pls note that he already owned 1,016,213 shares or 10% of the company through an old arrangement with Mestek�s owners, not though open-market share purchases! This means that he chose to increase his holdings by 1/10 of 1% - yes by 0.1%. How much richer does that make him? Also his acquisition of 1,000 shares was at the grand total cost of $19,620, or 2% of his cash compensation in 2005, which was over $900,000! The size of the share purchases of some of the other managers and board members are even more absurd � ranging from 100 to 500 shares. So while from an economic perspective it�s hard to find the immediate rationale for the recent (to quote the article) �muscular buying at Omega Flex�, there�s a very clear perceptual value (but only for those who don�t do their homework) to be derived, as exemplified by the Motley Fool article and their �analysis� and statements for �muscular buying� at OFLX..
In summary, I believe that investing is all about personal judgement calls on risk and return. While this equasion looked appealing to me a year ago when OFLX�s prospects were much better than today and the stock price was � of its current levels, the opposite is true today � prospects are worse and stock price is 2x higher. Thanks for the inputs � I welcome any further valuation-based discussion on the stock.
Contrary opinion is usually helpful in investing, and other aspects of life too.
1. This market for OFLX's products is worldwide, not limited to the U.S., anywhere with natural gas and halfway decent wage rates. Also, the residential market is only partially penetrated in the U.S., the C&I market much less so. I don't agree that the the growth story is only in the past.
2. Yes, there is generally more risk with smaller businesses, although I don't believe the risks in OFLX are pronounced; rather I see them as limited. Growth may be somewhat lumpy, which seems not to bother Warren Buffet too much. Coke had (and still has) the law of large numbers working against its future growth; OFLX does not. (The law of large numbers is Mr. Buffet's largest obstacle to percentage intrinsic value growth)
3. I personally dislike paying capital gains taxes. (Warren Buffet hates paying them) Unless a security is at least 25-30% overvalued, or you have some wonderful alternative investment, paying these taxes simply destroys personal wealth. Uncle Sam never even sends a thank you note either. If I need money, I simply borrow against my assets; interest is cheaper (and tax deductible if used for investments) than a large payment to Uncle and state politicos. Reasonably modest personal leverage, when invested well, is not very scary to me.
4. Here we agree. Buyouts are the icing on the cake, not the main event. Sometimes buyouts are not even all that wonderful; they can trigger taxes, or an investment in a more risky company.
5. Here we partially agree, although I place more value on the absence of insider selling than you apparently do. Also, not all officers and directors are necessarily rich; seemingly small purchases do say something. Many boomers are putting kids through college, buying second homes, etc. and don't have vast sums to invest, at least outside their retirement plans.
As a final note, allow me to ask a question. Which path to wealth works best for most people, even investment pros: a) buying great businesses (at somewhat reasonable valuations) and holding same for many years, or b) nimble in and out trading, including holding securities for a year or two, and paying capital gains taxes on the winnings along the way? For whatever it proves to be worth, I believe OFLX is a great business.