2023-04-13 18:38:10 ET
Summary
- Core Molding Technologies, Inc. recently announced solid Q4 FY22 and FY22 results.
- Their gross profit margins, net income, and revenues have grown significantly in FY22 compared to FY21, and the management has provided optimistic revenue guidance for FY23.
- Core Molding Technologies, Inc. valuation and growth trajectory look solid.
- I assign a buy rating on Core Molding Technologies, Inc.
Core Molding Technologies, Inc. ( CMT ) provides a range of manufacturing processes, including resin transfer molding, spray-up and hand-lay-up, and structural web injection molding. They serve the automobile, agriculture, and other various markets globally. CMT recently announced its Q4 FY22 and FY22 results . In my opinion, they are undervalued and doing well financially. I will analyze their financial performance and discuss their growth potential in this report. I think they can provide handsome returns to the investors; hence I assign a buy rating on CMT.
Financial Analysis
Core Molding Technologies, Inc. recently announced its Q4 FY22 and FY22 results . The net sales for Q4 FY22 were $86.4 million, a rise of 18.1% compared to Q4 FY21. I believe the major reasons behind the surge were high pricing policy, new program launches, and increased demand in the truck and power sports segment. The net income for Q4 FY22 was $4.8 million, which was $440 thousand in Q4 FY21. I believe the major reason behind the rise was the $2.4 million tax benefit they received from the release of NOL valuation reserves. The gross profit margin increased to 13.3%, which was 11.5% in Q4 FY21.
The net sales for FY22 were $377.3 million, a rise of 22.7% compared to FY21. I believe the main reason behind the rise was increased product sales. The product sales in FY22 increased by 26.3% compared to FY21. I think the product sales increased due to the rise in demand for heavy-duty trucks and power sports. The net income for FY22 was $12.2 million, a rise of 161.2% compared to FY21. I believe the management's focus on enhanced margins, high pricing strategies, and a better ROCE led to increased net income.
In my opinion, the financial performance of CMT in FY22 was excellent; their net income and revenues grew significantly. The management's pricing strategy helped them to tackle inflation which was, in my opinion, one of the major reasons behind their financial success.
Technical Analysis
CMT is trading at the level of $18.6. The 200 ema is at $11.2, and the stock is trading above its 200 ema, which shows that it is in an uptrend. In the last six months, it has increased by more than 100%, which is massive, and it shows a lot of strength in the stock. Recently it has broken out of an important resistance zone of $17.5 and has given a closing above it in a weekly time frame. If it manages to sustain above the resistance zone, then I believe it has the potential to reach the $24 level in the coming times. So, in my opinion, the stock is looking technically strong, and one can buy it at current levels.
Should One Invest In CMT?
CMT has a diversified portfolio; they aren't dependent on a single market for revenue generation. They are present in many markets, which is a positive sign because a company's operations might be problematic when it depends on one specific market for revenue. The management has been launching new products and projects to boost revenue growth. Especially projects related to in-ground vault products, stormwater solutions, and other industrial utilities projects. Core Molding Technologies, Inc. expects these projects to be in full production by Q3 FY23. These project launches reflect expanding end markets for which they have developed engineering solutions. If the launches are successful, I believe it will lower costs, improve performance, and boost revenue growth.
They have Revenue 3 Year ((CAGR)) of 9.9% and diluted EPS ((YOY)) of 161.6%. So, not only is their past and present growth trajectory solid, but their future growth trajectory also looks solid. The revenue estimate for FY23 is around $384.7%, which is higher than FY22 revenue. Considering all the above points, I think they might achieve the revenue targets. So I think CMT can be a solid investment option.
Now, talking about its valuation, I will use EV / EBIT and Price / Sales ratios to judge its valuation. The EV / EBIT ratio is calculated by dividing enterprise value by the EBIT, and the Price / Sales ratio can be calculated by dividing a company's market capitalization by the annual sales. CMT has an EV / EBIT ((FWD)) ratio of 10.22x compared to the sector ratio of 11.31x. CMT has a Price / Sales ((FWD)) ratio of 0.44x compared to the sector ratio of 1.11x.
After looking at both ratios, I believe Core Molding Technologies, Inc. stock is undervalued. Looking at their pace of growth and financial performance, I believe it has great growth potential, and the valuation is justified, in my opinion.
Risk
Core Molding Technologies, Inc. enters into long-term contracts that fix the customer product pricing and obligates the Company to accept all product orders to win new business in a cutthroat market. Although these fixed-price customer contracts permit some price increases, they might not cover all of the Company's cost increases. Thus, if the Company's operating expenses rise, such as those for labor, raw materials, and overhead, the Company might not be able to raise the price of goods sold to customers by an amount sufficient to offset the rise in operating expenses, which could negatively impact their operating results and financial condition.
Bottom Line
FY22 proved to be a successful year for Core Molding Technologies, Inc. Their gross margins, net income, and revenues increased. Their valuation and growth trajectory looks solid. I believe they might continue to do better financially in the coming quarters and might provide handsome returns to the investors. Hence, I assign a buy rating on Core Molding Technologies, Inc.
For further details see:
Core Molding Technologies: Financially Sound Stock