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Why Some Investors Love This Small-Cap Stock

By Motley Fool Staff – Dec 22, 2021 at 4:00AM

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Very attractive revenue numbers.

In this segment of "Industry Focus" on Motley Fool Live, recorded on Dec. 2, Fool analysts Auri Hughes and Nick Sciple examine the strong revenue growth for XPEL (XPEL 2.27%) over the past few years.

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Auri Hughes: I should have pulled up CapIQ earlier. I recently looked at it when we were going to do this segment and I have a pretty good amount already, but to me, it does look fairly attractive.

I think the biggest thing is for stocks, it's continuous compounding and they've been putting up very strong growth rates with profitability, which is something I like, which sometimes I start to think is going out of style where a lot of companies burn cash, maybe I'm a little old school.

But their year-to-date over the last 12 months, 58% revenue growth, 22% in 2020, 18%, 63% in '18, so really strong revenue growth with profitability. You're getting operating leverage that's going to the bottom line.

The bottom line revenue growth has been between 60 and 80 percent. I look at that and then I compare it to the multiple it's trading at now and it's trading at 43 times EBITDA, which is not super expensive, not super cheap and then the next year's EBITDA is 32.

Just looking at a lot of companies, I don't think it's egregious, not cheap, but it's something I would feel comfortable with. I think it's fairly priced, under 10 times sales. It's had a pullback too compared to the prior years.

In past years, it was trading at maybe 50 times forward EBITDA and 47 percent and now it's at 32 times forward. I usually like to see those pullbacks. I think it's fairly attractive where it's at now.

Nick Sciple: If you can write down another five years of 30 percent compounded revenue growth, that type of EBITDA, and again, with the type of operating leverage. You talked about you can really get there on evaluation that maybe optically looks a little high on the traditional valuation metrics.

Auri Hughes owns Xpel Inc. Nick Sciple owns Xpel Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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