Compx International: A Safe Industrial Stock With a High Dividend Yield
Compx International (CIX) is a Dallas-based manufacturer of security products and recreational marine components, operating through two main business segments: CompX Security Products and CompX Marine. CompX Security Products manufactures locking systems used for applications such as office furniture, motorcycles, postal boxes and medical carts, while CompX Marine manufactures high-end components for markets like recreational boating, military and industrial.
Compx International recently came to my attention because it has the highest possible Piotroski F-Score. It appeared in my Piotroski F-Score screen, which I created using the GuruFocus All-in-One Screener. Why does this score matter? The Piotroski F-Score identifies stocks that could be undervalued with strong fundamentals.
Piotroski F-Score breakdown
I came across the Piotroski F-Score many years ago, and I like it because it applies solid fundamental analysis in an easy-to-understand format. The score is calculated based on nine criteria that are summarized in key areas like profitability, liquidity and efficiency. I particularly like that this score also takes into account the cash flow trend.
In essence, the Piotroski F-Score analyzes the change over the previous year for key metrics such as cash flow from operations, current ratio, return on assets, asset turnover and gross margin. A company that gets the highest Piotroski F-Score, like CompX International, has performed very well in improving its profitability, having higher efficiency in its business operations and higher liquidity, meaning strong financial health.
Valuation
The shares of Compx International have gained nearly 18% in 2023, outperforming the S&P 500 by nearly 2%. The stock has a price-earnings ratio of 12.25, a price-book ratio of 1.66 and a price-sales ratio of 1.62.
The GF Score of 92 out of 100 indicates high outperformance potential based on a historical study by GuruFocus. The GF Value of $23.29 shows that the stock is fairly valued. However, I believe the stock has more upside potential than that based on the free cash flow trend, the profitability and the high dividend yield along with high growth.
Most importantly in my opinion, the company has generated positive free cash flows over the past five years. In 2022, free cash flow of $13.2 million was an increase of 106.83% compared to the free cash flow of $6.38 million in 2021. A positive free cash flow trend supports higher stock prices as free cash flow is used in discount cash flow models for valuation purposes. Adding the fact that the company had no issuance of shares during the last year, which is one of the nine criteria used to calculate the Piotroski F-Score, the free cash flow generated during the past year can be applied at 100% with zero stock dilution for valuation purposes. I think this is very positive.
Focusing on profitability, this company has an operating margin that is expanding. Margin expansion is a very good sign. Compx International's operating margin for the quarter that ended in March 2023 was 17.11%. The company has a five-year average operating margin growth rate of 0.50%
For the quarter ending in March 2023, Compx International had a net margin of 14.75%, which was not only near its highest figure of 14.82% in June 2022 for the past 12 quarters but also ranked better than 82.5% of the 1,046 other companies in the business services industry.
I also like the fact that Compx International's annualized return on equity for the quarter that ended in March 2023 was 15.18%. Over the past 10 years, the ROE has ranged but has generally remained high, with a minimum value of 5.82%, a median value of 9.16% and a maximum value of 13.26%. Therefore the current ROE figure is at the highest figure over the past 10 years, indicating a great profitability trend.
Compx International has shown predictable revenue and earnings growth too. The three-year revenue per share growth rate is 10.6%, the three-year Ebitda per share growth rate is 11.6% and the three-year earnings per share without non-recurring items growth rate is 9.4%.
The company has no debt and its shares have a dividend yield of 4.59% with a very healthy payout ratio of 0.56. As there is no debt and the payout ratio is considered to be low, there is plenty of room for future dividend increases. As there is consistent positive free cash flow generation, the company can either reinvest the cash in its business expansion or alternatively increase its dividend. Both of these factors should support higher stock prices.
Conclusion
With all of this considered, I believe investors looking for a safe stock with a high dividend yield may want to consider Compx International. This company appears to have good financials, profitability, growth and a very attractive dividend yield.
This article first appeared on GuruFocus.
