|Written by GSCR Staff|
|Friday, 14 November 2014 07:33|
For those who come up with investing ideas based on economic indicators, there is a relatively new metric that has evolved over the last 25 years or so, called the FedEx/UPS (NYSE – FDX, NYSE – UPS) indicator.
This idea is very simple: Improving business for these firms indicates increased economic activity, which serve as a leading economic indicator.
In our Goldman Guide this week we mentioned that Consumer Discretionary stocks should be solid in the near to intermediate term as some tea leaves have appeared thus indicating a slightly improving economy. We tie these two themes inherent in the Consumer Discretionary sector stocks with a proxy for overall business economy in today’s small cap pick.
UFP Technologies, Inc. (NASDAQ – UFPT - $22.34) produces and sells custom-engineered components, products, and specialty packaging solutions with exposure to a multitude of industries including medical, automotive, aerospace, and defense, and packaging markets in the United States. The Company benefit from an increase in industrial activity and a rise in the demand for high tech packaging solutions.
Some of UFPT’s financial metrics are quite noteworthy. For example, gross margin of 28% is substantially higher than the versus industry average of 24%. This is a great sign related to pricing and profitability as it indicates customers are willing to pay a premium for products and solutions from UFP Technologies. Additionally, operating margin of 11% versus 8% for the industry shows above average operating efficiency. Finally, a debt to equity ratio of 3.3 may not mean much in isolation, but total debt of only $3 million with over $33 million of cash on hand illustrates a strong balance sheet.
On the technical side, UFPT just crossed the 50-day EMA on what appears to be the start of another accumulation phase coming off a relative low. A short ‘float’ of just under 3% indicates that those going long may have a huge advantage. Finally, the valuation comparison of forward versus trailing P/E is a plus. The trailing P/E is 17x and the forward P/E is a cheap 14x.
We think UFPT is a great play on the overall economy and the consumer discretionary sector, in particular. Our near term target is in the upper $20’s.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
This Market Monitor blog was prepared for informational purposes only. Goldman Small Cap Research, (a division of Two Triangle Consulting Group, LLC) produces research via two formats: Goldman Select Research, which typically highlights small cap companies, and Goldman Opportunity Research, which features micro cap companies in a sponsored research format. Thus, the Select product reflects the Firm’s internally generated stock ideas while the Opportunity product reflects sponsored research reports.
Goldman Small Cap Research is not affiliated in any way with Goldman Sachs & Co.
It is important to note that while we may track performance separately, we utilize the same coverage criteria in determining coverage of all stocks in both research formats. Please view the company’s individual disclosures for each engagement, which can be found in each company-specific report. All information contained in this blog, newsletter and in our reports were provided by the Companies or generated from our own due diligence. Our analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests, retain editorial control, and ensure independence. Analysts are compensated on a per report basis and not on the basis of his/her recommendations.
The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Goldman Small Cap Research did not make an independent investigation or inquiry as to the accuracy of any information provided by the Company, or other firms. Goldman Small Cap Research relied solely upon information provided by the Company through its filings, press releases, presentations, and through its own internal due diligence for accuracy and completeness. Such information and the opinions expressed are subject to change without notice. A Goldman Small Cap Research blog, report, note, or newsletter is not intended as an offering, recommendation, or a solicitation of an offer to buy or sell the securities mentioned or discussed.
This blog does not take into account the investment objectives, financial situation, or particular needs of any particular person. This blog does not provide all information material to an investor’s decision about whether or not to make any investment. Any discussion of risks in this presentation is not a disclosure of all risks or a complete discussion of the risks mentioned. Neither Goldman Small Cap Research, nor its parent, is registered as a securities broker-dealer or an investment adviser with FINRA or with any state securities regulatory authority.
ALL INFORMATION IN THIS BLOG, REPORT OR NEWSLETTER IS PROVIDED “AS IS” WITHOUT WARRANTIES, EXPRESSED OR IMPLIED, OR REPRESENTATIONS OF ANY KIND. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE FOR THE QUALITY, ACCURACY, COMPLETENESS, RELIABILITY OR TIMELINESS OF THIS INFORMATION, OR FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, SPECIAL OR PUNITIVE DAMAGES THAT MAY ARISE OUT OF THE USE OF THIS INFORMATION BY YOU OR ANYONE ELSE (INCLUDING, BUT NOT LIMITED TO, LOST PROFITS, LOSS OF OPPORTUNITIES, TRADING LOSSES, AND DAMAGES THAT MAY RESULT FROM ANY INACCURACY OR INCOMPLETENESS OF THIS INFORMATION). TO THE FULLEST EXTENT PERMITTED BY LAW, TWO TRIANGLE CONSULTING GROUP, LLC WILL NOT BE LIABLE TO YOU OR ANYONE ELSE UNDER ANY TORT, CONTRACT, NEGLIGENCE, STRICT LIABILITY, PRODUCTS LIABILITY, OR OTHER THEORY WITH RESPECT TO THIS PRESENTATION OF INFORMATION.
For more information, visit our Disclaimer: www.goldmanresearch.com