2023-03-05 06:35:28 ET
Summary
- Marine Products Corporation has had a great run over the past several months, with shares rising nicely due to robust financial performance.
- All of the data provided by the company so far indicates little to no real weakness on the horizon.
- Though shares are lofty compared to similar firms, they do still seem to offer some upside from here.
From my experience, some of the best opportunities out there are contrarian plays. For instance, many might not view the recreational powerboat market to be particularly attractive right now. High inflation and high-interest rates aimed at combating inflation are not typically conducive to increased spending on this kind of high-cost activity. But one company that has done incredibly well in this environment is Marine Products Corporation ( MPX ). Although shares of the company do look to be pricey compared to similar firms, the stock is still cheap on an absolute basis. Between the robust fundamental performance reported by management and the fact that the market severely discounted the firm's potential because of economic concerns, investors have been left with a great opportunity for strong upside. So far, I do think the easy money has been made. But I would make the case that some additional upside is still on the table.
A great ride so far
The last time I wrote an article about Marine Products was back in the middle of August of 2022. Up to that point, sales and profits generated by the company were doing quite well. In addition to that, the stock was trading at low levels on an absolute basis, even though shares were on the pricey end of the spectrum compared to other boat-oriented firms. I did acknowledge that, because of this, shares may not be the best prospect in the space. But I did still believe that the company offered investors enough upside to justify the ‘buy’ rating I gave the company well when I initially wrote about it in September of 2021. Since then, things have gone remarkably well. While the S&P 500 is down 5.7%, shares of Marine Products have achieved upside of 20.3%. And since my initial article on the company in September of 2021, the stock has given investors a return of 20.1% compared to the 7.2% decline the broader market experienced.
For the 2022 fiscal year in its entirety, Marine Products did remarkably well. Revenue of $381 million dwarfed the $298 million the company reported only one year earlier. There were really two main contributors behind this sales increase. First and foremost, the company reported an average gross selling price per boat of $76,800 during the 2022 fiscal year. That's 23.7% higher than the $62,100 reported in 2021. Despite the massive price increase, the company still saw the number of boats that have sold rise. This number increased from 4,165 to 4,331 in the course of a year.
The increase in revenue brought with it higher profits. Net income jumped from $29 million in 2021 to $40.3 million in 2022. Operating cash flow fared better, skyrocketing from only $0.5 million to $49.3 million. Though if we adjust for changes in working capital, we would have seen it increase more modestly from $33 million to $44.3 million. And finally, EBITDA for the business expanded from $38.2 million to $53.7 million.
Given current economic conditions, it would be reasonable for investors to ask whether or not some weakness has developed as of late. The answer, from what I can see, is no. In the final quarter of 2022, the company reported revenue of $108.5 million. That's a whopping 41.8% higher than the $76.5 million reported only one year earlier. On this front, the company benefited from a 12% increase in the average selling price per boat. But the big driver involved a surge in the number of units the company sold. As a result of higher sales, profits jumped from $8.4 million to $11.9 million. Operating cash flow more than doubled from $9.1 million to $22.2 million, while the adjusted figure for this expanded from $9.7 million to $13.4 million. And finally, EBITDA for the business expanded from $11.1 million to $15.3 million.
Unfortunately, management has not revealed what the 2023 fiscal year might look like. Or at least they haven't provided any concrete numbers for it. What they did say, however, is that indications of attendance and orders from the early boat shows are coming in positive. As a result of this, the company is maintaining a high production schedule and it has allocated dealer inventories throughout the first quarter of 2023. But they have said that they are also continuing to monitor conditions as time goes on because of higher interest rates and broader economic concerns.
Using the data from the 2022 fiscal year, I calculated that the company is trading at a price-to-earnings multiple of 11.2. This is down from the 15.6 reading that we would get using data from 2021. The price to adjusted operating cash flow multiple for the company declined from 13.7 to 10.2, while the EV to EBITDA multiple dropped from 10.7 to 7.6. As I do with other companies that I analyzed, I decided to compare Marine Products to five similar businesses. On a price-to-earnings basis, these companies ranged from a low of 4.2 to a high of 12.7. Three of the five companies were cheaper than our target, while another one was tied with it. Using the price to operating cash flow approach, the range would be from 4.5 to 11.4. And when it comes to the EV to EBITDA approach, we get a range of between 4.8 and 8.1. In each of these cases, four of the five companies are cheaper than our target.
Company | Price / Earnings | Price / Operating Cash Flow | EV / EBITDA |
Marine Products Corporation | 11.2 | 10.2 | 7.6 |
Malibu Boats ( MBUU ) | 7.3 | 7.9 | 4.8 |
Brunswick ( BC ) | 9.8 | 11.4 | 6.9 |
MarineMax ( HZO ) | 4.2 | 9.1 | 4.9 |
MasterCraft Boat Holdings ( MCFT ) | 11.2 | 4.5 | 5.0 |
BRP Inc. ( DOOO ) | 12.7 | 8.5 | 8.1 |
Takeaway
Operationally speaking, Marine Products seems to be doing really well. Management seems cautiously optimistic about the near-term picture and both profits and cash flows have risen significantly. It helps that the number of boats delivered to customers also continues to rise. This suggests that the company might be able to keep some of its higher pricing even in the event of a broader economic downturn. Though not mentioned in the rest of this article, the company also has no debt and it enjoys cash and cash equivalents of $43.2 million. While it is true that the stock might be expensive compared to similar firms, it does look quite attractive on an absolute basis. So adding all of these factors together, I do think some additional upside is probably on the table. As such, I've decided to keep the ‘buy’ rating I had on the company previously.
For further details see:
Marine Products Corporation: Still Some Power Behind This Powerboat Business