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A Top Growing Public Company in Minnesota

November 28, 2013 | About:
victorselva

victorselva

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In a macro view, revenues in the electronic equipment and instrument sub-industry will remain strong due to the rise in equipment and instrument manufacturers. Distributors, electronic manufacturing service (EMS) companies and original equipment manufacturers (OEM) are going to increase orders as the economy improves in the future. With this promising outlook, let's take a look at Gabelli´s last trade and try to explain to investors the reasons of this appealing investment opportunity.

On Nov. 21, Mario Gabelli bought Mocon Inc. (MOCO), a company which makes equipment to test packages and packaging material, and performs consulting and analytical services.

Good Revenue Growth

In Q3, revenues were $14.2 million vs. $12.3 million in the prior year, growing by 15% year to year, and considering the nine months ended in September the growth rate was 22% year over year. The three segments have done well, sales in the Permeation group increased 20%; and sales in the Package Testing group increased 14% due to a good product mix. Moreover, sales in the Industrial Analyzer group increased 8%. Additionally, after acquiring Denmark-based PBI-Dansensor A/S (Dansensor), the company seeks to expand its presence outside the U.S. (Europe) and in the MAP technology market, where we think is a perfect complimentary fit for the firm.

Dividends in a Growing Industry

The current dividend yield is 3.1% outperforming not just the industry average (1.91%), but also the company Electro-Sensors, Inc. (ELSE) with a 3% dividend yield. So dividends are considered good to protect the purchasing power and might attract investors, because is a good option for them to receive cash while they are waiting for more upside appreciation.

Valuation

In terms of valuation, the stock sells at a trailing P/E of 20.4x, trading at a premium compared to an average of 17.6x for the industry. To use another metric, its price-to-book ratio of 2.1x indicates a premium versus the industry average of 1.31x and the price-to-sales ratio of 1.35x is above the industry average of 0.8x.

Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. Since 2010, while Electro-Sensors ROE is growing, Mocon's low ROE is not attractive and is also declining. Although the ROE has a downward trend, the ratio has improved when compared to its ROE from the same quarter one year prior.

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Final Comment

Mocon´s revenue growth has outpaced the industry average (21.8% vs 4.5%). I expect this trend to continue as well as the significant earnings per share improvement registered in the last quarter. Despite of having found a major weakness in the result of ROE, the firm has other highlights as its revenue growth seen before and the dividend yield which makes me think that is a possible good addition to investor´s dividend portfolio.

Hedge fund managers have also been active in the company. Hedge fund gurus like Jim Simons and Bill Frels have invested in it.

Disclosure: Victor Selva holds no position in any stocks mentioned.


Rating: 4.8/5 (6 votes)

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