The big gainer today on all three exchanges is a heretofore-obscure little maker of body armor, DHB Industries (AMEX:DHB). The stock jumped 35% out of the gate this morning and a staggering 133% over the last 52 weeks while the Standard & Poor's 500 struggles to keep in positive territory.
What's propelling the stock higher -- today, at least -- is word of a U.S. Army order for $239.4 million in body armor, which brings total defense orders to $381 million for the last eight months and the company's backlog to $415 million. Those are staggering numbers for a company that has trailing annual sales of $260 million.
Of course, the news is barely news to subscribers of Motley Fool Hidden Gems. After all, DHB has been on Tom Gardner's Watch List and has long been a favorite topic of discussion among the small-cap-obsessed Hidden Gems community members.
Like many gems, DHB is also a market leader in a rapidly growing industry -- one that you expect to be dominated by usual suspects General Dynamics (NYSE:GD) or Raytheon (NYSE:RTN). Even competitor Armor Holdings (NYSE:AH) is broadly diversified and has an anemic 6.6% return on equity (ROE). Getting warmer, Ceradyn (NASDAQ:CRDN) specializes in lightweight ceramics, is debt-free, and delivers an impressive 32.7% ROE, but is likewise less of a pure play.
By comparison, a vast majority of DHB's sales come from the rapidly growing body armor market. The stock sells for -- even after today's explosive gain -- a price-to-earnings ratio in line with the group. With a solid 48.4% ROE, DHB is still not overpriced when compared with its peers.
But is it the next Taser (NASDAQ:TASR)? Not quite. While DHB shareholders would love to see their stock jump 1,300% in 52 weeks, Taser has no competition and abnormal 27% profit margins (compared with DHB's 4%). Read Rich Smith's view, too, for a rather sobering look at DHB.
That said, DHB gives you strong free cash flow, growing revenue, and exposure to a market with rapid growth potential. Likely, that's what caught Tom Gardner's eye back in the day. Now, with word of the recent government orders, this one looks to be running away with the armor business. That can only be good news for shareholders.
What next?
It's not easy spotting tomorrow's winners today. With Tom Gardner's picks up 57.75% since he launched Hidden Gems just about a year ago (vs. 4.1% for the S&P 500), it's little wonder his Watch List is watched. Intrigued? Lock in your subscription at charter member prices -- available only through June 20.
Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.
