Since when does news of 100% growth drive a stock price down 6% in early trading? Welcome to the strange world that is Ceradyne (NASDAQ:CRDN). It seems odd that a company known for its military ceramic armor plates should be held by so many timid and frightened little sheep, but that's just part of the reality here. The shares ride one of those typical small-cap roller coasters -- it's moved something like 15% so far today -- and provides plenty of opportunity for gut aches as a result. Even so, there's still more to like at Ceradyne than there is to fear.
Fourth-quarter and full-year results just came out today, and they dispelled any lingering doubts this investor had. We already knew sales would be outstanding. In addition to the hot market for armor plates, the firm's acquisition of ESK provided a major boost to revenues, as well as some much-needed diversification. The full year's sales came to $215 million, 112% better than the firm took in last year. A third of Q4's sales came from the ESK division. The bottom line shows $0.35 per share, a couple of cents better than top end of the range I expected, and not even accounting for the $0.06 per share that the company said was lost to acquisition issues. Shedding that, we'd be looking at $0.41 per share for the quarter. The official, full-year tally is $1.12, 119% better than last year.
Margins were a mixed bag, as I anticipated. Gross margins ticked up for both the year and the quarter. However, operating margins for Q4 dropped to 17.8% from last year's 19%, mostly because of some hefty increases in selling, general, and administrative expenses as well as research and development. Factor in some debt payments -- which didn't exist last year because the pre-ESK firm was debt-free -- and you're looking at net margins of 10.5% for the quarter instead of last year's 12.7%. Reason to panic? Not if you consider that the drop is outweighed by the -2.6% hit that acquisition-related charges put on gross margins.
The bottom line here is that Ceradyne is putting in solid execution on its ambitious growth plan. The company looks fairly priced on its existing businesses alone, and that means you get the potential growth in vehicle armor and other defense systems for free, along with all those other industrial, vehicular, and medical applications. The company is building up its executive team to capture new markets for the diverse product line. The stock, like peer DHB Industries (AMEX:DHB), is volatile, so if you like what Ceradyne's doing, be sure, and buy with patience. The panicky momentum-investor kids out there will give you plenty of sale prices.
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Seth Jayson is wondering whether Ceradyne can make him some kind of lightweight armor for his commuting bicycle. At the time of publication, he had shares of Ceradyne but no position in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.
