Even though it sounds like a lesser-strength Kryptonite, door maker Masonite (NYSE:MHM) reported some Superman-worthy results yesterday, posting sales, profit, and earnings growth even as margins slipped.
In the face of higher transportation costs, four hurricanes that created lost production and shipping days, and a 25-day labor strike at an Ontario, Canada, interior door plant, all of which hurt margins, the company was still able to post a 29% increase in sales, a 20% increase in profits, and growth of 18% in earnings per share.
The company has been able to achieve the bulk of its growth through organic means, which represented 16% of the numbers reported for the quarter and 14% for the first nine months of the year. Yet the company has been able to make a number of strategic acquisitions as well, such as purchasing the door operations of a once prime competitor, Stanley Works (NYSE:SWK), in March and completing the acquisition of a Malaysian door company this quarter. It's estimated Masonite owns 30% of the North American door market and half the interior molded door market in the U.S.
It helps explain why Masonite was an early recommendation of The Motley Fool's new Inside Value newsletter. Chief analyst Philip Durell noted the company was not a "deeply undervalued" choice but one that exhibited a significant margin of safety with little downside. It has a yummy price-sales ratio of 0.67 and a PEG of 0.80.
It would appear that the market agreed with that assessment following the earnings release, as it boosted the share price nearly 7% yesterday. The company, which had once been a unit of International Paper (NYSE:IP) and was itself acquired by its Canadian rival Premdor -- at one time its largest customer -- finds itself with little direct competition. The door maker has reported a lock on 10 straight years of rising sales, reflecting the strength of the housing boom, though earnings themselves have bounced around.
While the housing sector has been a great boon to Masonite, the company has a handle on how to do one thing and do it well: sell doors. With few competitors other than regional door manufacturers in North American or Europe, $125 million in cash, and a focus on its primary business, it is primed to slam the door shut on naysayers. The only thing threatening to unhinge Masonite is its growing debt: up 39% from last quarter as it borrowed rather than spend down its cash to make its acquisitions.
Trading at just nine times 2005 earnings, Masonite is an opportunity waiting to knock and offers investors' portfolios a tighter fit than Clark Kent's hosiery.
Fool contributor Rich Duprey fits tightly into his clothes as a result of eating too many Krispy Kreme doughnuts. He owns shares of Masonite but does not own any of the other stocks mentioned in this article.
