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Wait for this Underfollowed, Undervalued Stock: Key Tronic
Posted by: Jae Jun (IP Logged)
Date: August 28, 2013 11:22AM
Welcome to Key Tronic
One of the things that Key Tronic Does
Key Tronic (KTCC) started out in 1969 as a company in Washington state making computer keyboards. From their humble beginnings, Key Tronic grew into an Electronic Contract Manufacturing company which is another way of saying they are an OEM. They now make a huge variety of products, manufacturing for the printer market, telecommunications, automotive, medical, aerospace, military and more.
To be an OEM, you must be able to do everything from A to Z. Everything from handling supply chain management to prototyping, molding, tooling, product assembly, quality testing, distribution and even repairs.
A Look at Their BusinessFor a small company with a market cap of 100m, they refer to themselves as “North America’s largest precision injection molding company, capable of molding parts in any size, any volume and any material including multi-material products.”
Currently Key Tronic is generating revenue from 183 separate programs from 56 customers. In 2012, it was 165 separate programs and 48 distinct customers. 2011 had 119 programs and 33 customers. These are some very good customer growth numbers.
Think of programs as “projects” from customers. A customer is unique, but a customer may have several different items it gets built. With each new customer acquisition, if the service, quality and reliability is good, they will likely award Key Tronic with more products.
Because Key Tronic is an all-in-one solution, once they get into a customers good books, and more programs are awarded, a switching cost is created to the customer. This is an important moat to have in the manufacturing industry.
Contract manufacturing has always been a razor thin margin business. OEM’s make money on volume since the customer will be marking up their prices to a suitable retail price, the OEM price is cut throat.
Net margin for 2012 was 3.4% and in 2013, it’s 3.5%. This is on the high end when you compare with other contract manufacturers. Usually, you’ll see net margins between 0.5% to 3%. Anything above 3% is fantastic.
The other highlight for Key Tronic is their cost structure. By being able to manage everything in the manufacturing process and more, operations can be scaled to keep the cost structure flexible. When revenues are expected to decline, the costs will be lowered as well to maintain consistency in the
They also have a flexible cost structure so they can scale down when expenses when revenues go down.
Let’s get into the highlights and lowlights for Key Tronic based on the Fundamental Stock Analyzer.
Key Tronic Highlights
Key Tronic Lowlights
DCF fair value range around $13
Viewthe KTCC Dashboard Summary
Stocks Discussed: KTCC,