This company recently presented at Southwestern Showcase 2006, an annual event held in Dallas during November. Check here for a list of presenting firms; most also provided a recording of their presentations. I'll be providing a recap of the events I was able to attend. Be sure to check The Motley Fool's daily headlines for updates.
Of the handful of home improvement-related companies that presented at Southwestern Showcase, Dallas-based Craftmade (NASDAQ:CRFT) was the smallest, but it has a number of interesting investment characteristics.
Craftmade is a designer and distributor of ceiling fans, indoor and outdoor lights, and related accessories. It operates in two primary segments: The namesake Craftmade unit sells products to more than 1,800 showrooms, while TSI sells merchandise to mass retailers including Wal-Mart (NYSE:WMT), Bed Bath & Beyond (NASDAQ:BBBY), and Lowe's (NYSE:LOW).
Free cash flow generation has been impressive at Craftmade over the past few years, having come in ahead of reported net income by a range of 7% to 54%. The company also pays a nice 2.6% dividend with the excess cash flow, has a return on capital near 18%, and is trading at a reasonable 12.6 times trailing earnings.
One investment drawback I see is that Craftmade hasn't grown much recently. It's understandable that substantial Sarbanes-Oxley regulatory costs hit fiscal 2005 earnings, since Craftmade is only a $100 million company by market capitalization. But sales trends have been anemic and are even moreso lately as the housing market takes a tumble in overheated areas. Plus, being small has further disadvantages, as witnessed by Lowe's recent decision to stop selling 14 lighting products distributed by Craftmade that accounted for nearly 12% of last year's total sales.
More positive aspects include the fact that Craftmade's customer base represents an enviable list of growing retailers, it is moving production sourcing to China from higher-cost Taiwan, and it believes it can expand its showroom network by almost 20% without any distribution worries. It also seeks acquisitions to buy market share.
I don't think there's any hurry on the name, as the homebuilding market is expected to struggle at least through next year and is already hurting sales trends, but Craftmade has a number of investment merits that make it worthy of consideration. The dividend is also a nice consolation for current shareholders who decide to wait out weak housing-start trends.
For related Foolishness:
Wal-Mart is an Inside Value pick, while Bed Bath & Beyond is both an Inside Value and aStock Advisorselection. You can be the first to enter your thoughts on Craftmade in the burgeoning Motley Fool CAPS community.
Fool contributor Ryan Fuhrmann is long shares of Bed Bath & Beyond but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.
