"You knock me out, right off of my feet." -- Boom Boom, The Animals ('60s hit record)
When I wrote aboutDynamic Materials
Well, fast-forward three months, and you will discover the company with the "BOOM" stock symbol (its largest operating business, with 95% of sales, named the Explosive Metalworking Group uses a proprietary explosive process to perform metal cladding) is still, shall we say, booming. After doubling in a day, the stock went right on to triple that gain! Not bad.
Propelling this exploding stock price growth has been outstanding business performance. Fourth-quarter revenue increased 126%, net income swung from a $0.6 million loss to a profit of $2.3 million (a solid $.41 a share vs. an $.11-per-share loss in the year-ago period), and the EMG backlog is at a record $27.5 million.
Although the stock has been up as much as 16% this morning (though the gain settled to 7% by afternoon) and is setting a new 52-week high, there are sobering words in the latest earnings report for investors to consider. Driving domestic demand has been the refinery industry's need to comply with 2006 clean fuels regulations. Also sparking demand has been a $5.5 million contract for nickel project in Australia -- the final spending for which ends in the current quarter.
Investors would also be wise to note the company has a net debt (debt minus cash) of $10.1 million. Although the company is clearly growing, solidly profitable, and not planning to increase debt, it is still in a cyclical industry and debt-heavy.
Dynamic Materials, with only 5.2 million shares outstanding, is a Lilliputian compared with giants such as Cisco Systems
In 2005, the budget for capital improvement and expansion will double. That bodes well for accommodating future increases in business.
But, with the stock trading at 26 times trailing earnings, there looks to be at least some good news already priced in. Given the company's limited history and the cyclical nature of the business, the stock is priced a bit richly at the moment for this observer's tastes.
Fool contributor W.D. Crotty does not own stock in the companies mentioned.