Investment Jungle

Investment Jungle reader Paul has requested that we have a look at K Tron International Inc which trades on the NASDAQ under the symbol KTII. Paul says that both ValuePro and Stock2Own both give good numbers.

Let’s see if this stock measures up.

Company Profile:

From Yahoo Finance

K-Tron International, Inc., through its subsidiaries, engages in the design, production, marketing, and servicing of material handling equipment and systems for various industrial markets worldwide. Its products principally include various feeders, such as single and twin-screw, belt, and vibratory feeders used in plastics compounding, food, chemical, detergent, and pharmaceutical industries; mass flow meters, which measure and control the flow of material from a storage vessel; weight sensors and controls; and pneumatic conveying equipment comprising various components, such as loaders, blower packages, diverter valves, rotary valves, in-line filters, and other ancillary equipment. The company also designs, manufactures, markets, and sells size reduction equipment consisting of hammer mills, wood hogs, and double roll crushers used in electric utility, coal and minerals mining, pulp and paper, and wood and forest products industries. In addition, it involves in the sale of replacement parts; and designs, produces, and tests electronic assemblies.

Market capitalization is $266.27M. This is definitely a wee little stock.

Fundamental Analysis:

Well, the analysis definitely gets off to a rough start. Management was not able to consistently deliver a return on invested capital (ROIC) over 10% for each of the last 10 years. In fact, there were 3 consecutive years (2001-2003) where the ROIC was below 10%. Even the 5 year average ROIC just barely scrapes over our minimum at 10.5%.

The return on equity has also been dropping off. The 10 year average ROE is 18.23%. The 5 year average ROE drops to 13.68%. That is a pretty significant drop.

The equity growth rate has been interesting. The 9 year rate is 16.53%. The 5 year rate increases to 21.81%. The 3 year rate dips to 18.92% before rebounding higher to 30.16% last year.

The earnings per share growth rate is even more interesting. The 9 year rate is a mere 7.26%. The 5 year rate balloons up to 48.18%! The 3 year rate stays strong at 44.1%. And last year’s rate? Even higher at 52.49%! These are definitely impressive.

Sales growth rates are similar. The 9 year rate is a mere 5.16%. The 5 year rate jumps to 16.88%. The 3 year rate hangs in there at 15.01%. And last year’s sales growth rate increased to 24.54%.

Cash flow growth rate? Same deal. From the 9 year rate of 7.31% to the 5 year rate of 30.68% to last year’s incredible increase of 43.17%.

The growth rates definitely seem to be improving and trending higher with a couple of small glitches along the way.

Stock Analysis:

Let’s calculate the sticker price.

For my future EPS growth rate, I’ll use the 9 year equity growth rate of 16.53%. It is the most conservative of the equity growth rates. However, you can see that the equity growth rates have consistently (except for 2005) been in the 22%+ range. So it might be a bit on the conservative side. Unfortunately, I was not able to find any forecasts. This stock is probably too small to have much of an analyst following.

For my future P/E, I will use the 5 year average P/E of 10.78. This is very close to the 10 year average P/E of 11.25. However, the current P/E is 16.65. Obviously with these higher growth rates, the P/E has been expanding.

With this information, the sticker price works out to $ 73.33. At the current price of $99.25, Mr. Market is demanding a premium of 35.35%.

Here is my Rule #1 analysis of KTII.

Here is the 1 year stock price chart:

Definitely been on a fairly steady trend upwards.

Conclusion:

For some reason, this stock just doesn’t jump out at me. The ROIC is a concern although the last 3 years have met the 10% minimum. The growth rates have been fairly explosive.

I am on the fence on this one. Do you feel that this is a Rule #1 stock?

Full Disclosure: I do not own shares in KTII.

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