Sometimes, you can get a fair sense of a company in just a few minutes of perusing press releases and casually reading SEC filings. Other times, you've got to dig a little deeper to see the real value of a company. That may be the case with leading dental company DentsplyInternational (Nasdaq: XRAY), since its positive aspects aren't immediately evident.
Take this quarter's revenue, for example. OK, 5.9% growth seems all right, but what about that 3.9% growth when you exclude precious metals? Likewise, 6.4% internal growth seems OK, until you see 1.2% growth in the U.S. -- which has more to do with difficult prior-year comparisons (because of some stocking/launch orders) than any fundamental weakness in the market.
It doesn't get easier as you go along, either. Gross margin looks so-so (flat, more or less) until you strip out the precious metals and see nearly a full point of improvement. And don't even get me started on the operating margin line -- it's down 1% from last year as reported, but if you adjust for precious metals and stock option expense, you see a result of 19.5%, versus 17.9% a year ago.
None of this is really high-level stuff. You can get it all from reading the 10-Q and/or listening to the call. The same documents will easily explain the seemingly low return on invested capital last year. But it's still the kind of thing that might slip through a screen or fail an initial "sniff" test. Most investors might not even realize that Dentsply is No. 1 or No. 2 in most of the markets in which it competes.
It's apparently the destiny of the dental industry to get subsumed into larger companies. After all, 3M (NYSE: MMM) is a major player, though people still think of them for Post-it Notes instead of fillings. Likewise with Sybron (NYSE: SYD), which is about to be amalgamated into Danaher (NYSE: DHR). That leaves Dentsply and tiny rivals like Schick Technologies (Nasdaq: SCHK) and National Dentex (Nasdaq: NADX).
Running the numbers through my Value-Matic 5000, I come away thinking that Dentsply is undervalued. Not by much, unfortunately, but still undervalued. While I'm a fan of bigger discounts to fair value that what I see here, I can't quibble with folks who'd think that any discount is good enough for a leading company like Dentsply, especially in such a generally stable and recurrent business.
Brush, floss, rinse, then click:
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Fool contributor Stephen Simpson owns shares of 3M, but has no financial interest in any other stocks mentioned (that means he's neither long nor short the shares). The Fool has a disclosure policy.
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