The 74% jump in GameStop’s (GME) share price on Monday indicates that the markets are overvalued. GameStop is a third-rate stock run by an overrated CEO and wannabe portfolio manager.
Meme stock investors, enjoy your 15 additional minutes of fame. Speculation on GameStop will end badly for retail investors as it did in 2021.
In the meantime, here on planet Earth, some businesses on Barchart’s Top 100 Stocks to Buy are worth investing in for the long haul that isn't too pricey and should move higher in the weeks ahead.
On Monday, Taylor Devices (TAYD), a $150 million SMID cap, jumped 36 positions to the 55th spot on the Barchart list. With a weighted alpha of 162.88, higher than its 123.4% gain over the past year, it looks primed to keep increasing in the weeks and months ahead.
Here’s why.
Is a 68-Year-Old Company Ready for Prime Time?
That’s an excellent question. I, too, was skeptical of a $150 million market cap that’s been around since 1955 and has been a public company since 1995.
Founded by Paul Taylor in North Tonawanda in upstate New York, he had been working at Wales-Strappit developing patents for liquid springs, a much better product than the existing coil springs at the time. Wales-Strappit was sold, so he went out on his own. Taylor’s son Doug became CEO in 1991, remaining in the position until May 2018, when he retired.
The rest, they say, is history.
Its website states it is “engaged in the design, development, manufacture and marketing of shock absorption, rate control and energy storage devices for use in various types of vehicles, machinery, equipment and structures.”
In the first nine months of 2024, its sales were $32.52 million, 10% higher than a year earlier. Its net earnings were $6.53 million, 55% higher than the first nine months of fiscal 2023. CEO Tim Sopko said the quarter’s sales and profits were the highest in its history.
It finished Q3 2024 with a backlog of $30.2 million, 9% higher than the $27.8 million it had at the end of February 2023.
In 2023 (May 31 year-end), its revenue was $40.20 million, up 30% from 2022. Its gross margin was 40%, 900 basis points higher than a year earlier. Its net income was $6.29 million, almost triple the $2.24 million it earned in 2022.
In 2024, it earned more through nine months than last year. It earned $2.07 million in Q4 2023 on $10.72 million in sales. In Q4 2024, I estimate it will earn $2.36 million on $11.79 million in sales, finishing fiscal 2024 with $44.31 million in annual sales and $8.89 million in net income, or $2.53 a share.
Based on zero debt and $24.6 million in cash and short-term investments on its balance sheet, it has an enterprise value of $124.8 million. This is 2.8x my projected sales for 2024. While it’s not an ideal comparison, Honeywell (HON) has an enterprise value of 4.0x sales.
So, there is reason to believe its market cap can increase despite its shares having gained 338% over the past five years.
Yes, a 68-year-old company is ready for prime time.
A Share Repurchase Done Good
In January, Taylor reported its Q2 2024 results. At the same time, it announced it had repurchased 459,015 shares of its stock from its largest shareholder, Ira Sochet, who made an unsolicited offer to the company for it to buy back Sochet's 13.04% stake at $19.92 a share.
It spent $9.13 million to acquire the shares, which are now worth $22.4 million, a return on investment of 145% in just five months. When it announced its Q3 2024 result, it had less cash on its balance sheet and 13% fewer shares outstanding.
This means that my $2.53 EPS estimate for 2024 is actually $2.87, which means its shares trade for just 17.0x its 2024 earnings.
Given double-digit growth on the top and bottom lines, the multiple is more than reasonable.
Put another way, its trailing 12-month free cash flow through Q3 2024 is $11.31 million. That’s a free cash flow yield of 9.1%. I consider anything above 8% to be in value territory.
As its CEO said in its 2023 annual report, the company finished fiscal 2023 with record full-year bookings of $49.1 million, 69% higher than the average of the past eight fiscal years.
All three operating segments continue to grow revenues, with its Aerospace/Defense business accounting for 62% of its bookings.
In recent years, it has implemented initiatives throughout the company to position its business for consistent, long-term, profitable growth. It’s delivered.
With nearly $8 cash per share on its balance sheet, its stock trades at a little over 6x that cash.
Taylor Devices might be small, but it provides investors with both value and growth.
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