A Top Growing Public Company in Minnesota
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.
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.
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.