Back in mid-March, FCStone Group's
FCStone has a group of 100 experienced consultants that help companies manage their commodities purchases. There are roughly 7,500 customers, and they traded about 50.2 million commodities contracts in 2006.
CAPS member ZenChemist has this to say about FCStone:
FCStone grew by nearly 50% in fiscal year 2006 and they will likely continue this trend for the near term. Their business model offers both consulting and trade clearing and execution. Thus, even if their customers outgrow the need for the consulting services, FCSX is likely to continue their trade clearing and execution ... It is still 'under the radar' so to speak for the mainstream.
Or there is this, from CAPS member deward0708: "[This is a] company with good leadership and provides a service -- risk management and commodity price volatility mitigation -- that more and more businesses will utilize."
At the time of the IPO, I wrote a bullish piece on FCStone. Besides its consulting business, the firm generates revenue from trading, financing services, and cash balances.
But the core is its high-end consulting business, which FCStone has built over nearly 40 years and which involves the design and implementation of commodity risk management programs, education, and ongoing monitoring. With volatility in commodities markets, exotic financial vehicles, and the rise of major players like China, it's not easy for companies to manage the risks. So it makes sense to outsource this crucial function to a specialist.
FCStone has been particularly strong in agricultural commodities and the energy industry. But with the proceeds of its IPO, the company can move into other verticals and penetrate global markets.
For fiscal Q2, FCStone's earnings surged 77% to $6.9 million, or $0.48 per share, and revenue was up 50%, to $403.4 million.
But the run-up in the stock has boosted the valuation to 41 times earnings. This compares to a range of multiples of 42 to 65 for futures exchanges like the Chicago Mercantile Exchange Holdings
If the growth continues, FCStone will probably see further momentum in its stock price. But the commodities business can be volatile, and the firm's valuation is now in line with its industry group, so it's probably a good idea for Foolish investors to be careful on the stock, despite the five-star rating.
Do you agree with our CAPS community? Make your voice heard and let us know.
For further Foolishness: