Trickle Down Economics – Value in Quanex Building Products

Written by GSCR Staff   
Wednesday, 24 February 2016 07:52

In Monday’s Goldman Guide we discussed our some EPS ‘crushers’. Certainly, right now we are looking for Companies that have a good track record in financial reporting for the all important metric combined with lofty forecast growth as well. Yesterday there was big news in the building and home products sector. Toll Brothers, Inc. (NYSE – TOL - $27.02) and The Home Depot, Inc. (NYSE – HD - $124.35) both clobbered expectations for revenue and were in line for EPS. We thought we would look for a ‘trickle down’ down stock in our small cap space.

Below is the one year chart for Quanex Building Products Corporation (NYSE – NX - $16.45) which illustrates a few head and shoulders patterns over that time and what looks like a buying trough dictated by the technical signal.

NX 1-Year Chart

(Source: www.otcmarkets.com)

MM.02.24.16.NX-1yr

Quanex Building Products Corporation, together with its subsidiaries, provides components for the window and door industry worldwide. The Company operates through two segments, Engineered Products and International Extrusion. It offers flexible insulating glass spacers; extruded vinyl profiles; window and door screens; and precision-formed metal and wood products, as well as solar panel sealants, wood flooring, trim moldings, plastic decking, fencing, water retention barriers, hardware, and conservatory roof components. The Company sells its products to original equipment manufacturers in the residential new construction, and residential remodeling and replacement markets through sales representatives, direct sales force, distributors, and independent sales agents.

We will start with the EPS crushers. The Company has hit or exceeded on EPS three of the last four quarters. Additionally, EPS growth is forecast to grow 45% on average over the next two fiscal years over FY15. The forward P/E is 14x versus the trailing of 34x on revenue growth of 55% to $1 billion for FY16. Finally, the Enterprise Value to EBITDA is low 9.8, which is an impressive figure, particularly for an acquirer if M & A should heat up in this space as stock prices rise.

We think now is the time to get in on NX. We are not alone in this sentiment as the current short float is under 3%. The stock should climb to $20 over the next six months.

Have a great day!

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