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.
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).
Earnings and revenues were both records for any Q1, so that's a good start for the year. Ryan still doesn't seem as confident as Larry did, but may still be doing a good job. Sounds like they getting the chromite under control finally.
Regarding valuation, it looks like revenues willl be up less than 10% on the year and earnings could be up maybe 15% on the year. What kind of multiple to you assign to 15% growth? Currently, using the xnpv calculation with a discount rate of 4%, the market is valuing Amcol assuming a growth rate of 8.6% over the next 20 years. That's conservative, but maybe not unrealistic. If you apply a growth rate of 10% over the next 20 years and a discount rate of 4%, it should be selling for $43.00 per share. That would be PE of about 20, which wouldn't be out of line if they can really grow at 10% for that long. Growth has averaged about 14% over the last 8 years or so. Using that would give a fair value of $80 per share, so clearly most players don't think they can grow at that rate for the next 20 years.