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AMCOL International Corporation Message Board

  • algo41 algo41 Oct 26, 2011 5:00 PM Flag

    ACO stock price

    I still have some shares of ACO bought at very low prices years ago, but I don't understand why stock price is as high as it is.

    Apart, perhaps, from oil services (and related parts of minerals), and cat litter, this is a pretty cyclical business.

    Results over last few years have been disappointing: they haven't exactly taken China by storm; chromite may work out well, but certainly problems have been greater than expected and South Africa is not the best place to do mining (energy availability, governance); beauty had problems, albeit now corrected; there have been no breakthroughs with Nanocor or health and beauty. R&D has never been high. I still have some faith in management, but that is based on events of years back.

    Having said all this, my record on thinking a stock is overpriced is not the best.

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    • I was just looking at a 10 year chart on ACO, and see that we hit $32 per share back in 2006. It looks like the sweet spot on these small caps is the run from a $50 million market cap to the $500 million range. After that, it seems the going is tougher. Perhaps at that point, their success draws in additional competition that wants to share in the profits. Maybe it's just gravity that holds them down. It's hard to maintain the parabolic growth pattern for sure. Seems like around the %500 million to $1 billion range, the best you can hope for is the 10% to 15% growth, unless you happen to hit on an Apple or Cisco during their best years.

      Still, revenues have grown from $600 million in 2006 to over $1 billion expected this year. It would be nice to see more of that move to the bottom line this year. If we are only growing earnings at 15%, perhaps $2.00 in earnings expected this year only gives us a share price around $30 with a PE of 15 or so.

      Just random thoughts....

      • 1 Reply to steve_382
      • I don't know, Steve. It seems like ACO has at least 3 distinct businesses, so in evaluating size ....

        Lots of things I was excited about have not come to pass, and I am surprised metalcasting hasn't picked up more Asian business. Still,they are executing well in metalcasting and chromium is turning the corner I infer. Oilfield services is a nice non-cyclical business (I don't know why they don't take the additives out of metalcasting and put in oilfield services).

        You once talked about the difficulties of large cap investing. Large caps do tend to have more moving parts, and I have to agree there is a correlation between size and difficulty of getting a real handle on things. Also, I am more impressed these days by the quality of the analysts as revealed by their questions (not good for us).

    • For certain, earnings haven't come back to the 2006/7 area yet. Still, revenues look to be record this year. At some point they need to clean things up and move them to the bottom line. Wish I had taken my own advice last year and sold some when it was up near $39. I added a few recently around $27.50, but I don't see a driver for it to go much higher until they show some signs of improving profits. I will still give them another quarter or two, and the dividend still helps a little. I guess the Q3 report will be out on Friday, so someone seems to expect a little improvement. We'll see.

 

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