Filtration-technology maker Polypore International
So how big is the threat for Polypore?
LG Chem, no longer a chum
One of Polypore's buyers -- LG Chem -- now plans to invest as much as $480 million in setting up its in-house production facility for lithium battery separators. LG Chem, a South Korean industrial giant, supplies lithium ion batteries for General Motors'
However, the extent of this threat is still not clear, as LG Chem's plans are still in formation, which also makes it uncertain whether this company's products will directly compete with those of Polypore's. But the market has already regarded this as bad news, since sooner or later it seems like it could weigh on Polypore's profitability. Regardless, let's take a look at the fundamentals of Polypore.
Let the numbers do the talking
Polypore's revenue climbed to $191 million, a considerable 13% rise compared to the year-ago quarter. Earnings increased by a staggering 47%, to $0.58 per share, but even this failed to meet market expectations of $0.59 per share.
What gives me hope is that Polypore recorded growth in key areas. Polypore earns most of its revenue by selling lead-acid and lithium battery separators. Sales of the latter spiked up by a noteworthy 53% compared to the year-ago quarter. Lithium battery separators are used in hybrid and electric-driven vehicles or EDVs, a segment that has seen robust demand lately.
So why did the stock go down? The huge market for lithium is a major growth driver for many such companies. And this is exactly why the LG Chem announcement may dim Polypore's prospects.
The Foolish takeaway
Despite the threat, Polypore has quite a few positives to support its growth in the long run. Apart from a good battery-separator business, the company has also posted moderate growth in its separation-media business backed by better sale of its healthcare, filtration, and specialty products.
Polypore's debt scenario is also decidedly brighter. A debt-equity ratio of 142%, down from 158% six months ago, definitely looks like an improvement. Plus, at a price-earnings ratio of 18 times, I think Polypore looks good to grab.
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Navjot Kaur does not own shares of any of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of General Motors and Polypore International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.