Trickle Down Economics – Value in Quanex Building Products

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)

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!

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