Investment Jungle

In my last post, I had developed a stock screen for Rule #1 businesses and my stock screen had come up with 6 candidates. It turns out that I numbered them in reverse ranking, so in fact, the last company was ranked highest in my stock screener. That company was Ceradyne Inc.

Company Profile

From MSN Money:

Ceradyne, Inc. develops, manufactures and markets technical ceramic products, ceramic powders and components for defense, industrial, automotive/diesel and commercial applications. Its products include lightweight ceramic armor for soldiers and other military applications; ceramic industrial components for erosion and corrosion resistant applications; ceramic powders, including boron carbide, boron nitride, titanium diboride, calcium hexaboride and zirconium diboride, which are used in manufacturing armor and a range of industrial products; evaporation boats for metallization of materials for food packaging and other products; durable, reduced friction, ceramic diesel engine components; functional and frictional coatings primarily for automotive applications; translucent ceramic orthodontic brackets; ceramic-impregnated dispenser cathodes for microwave tubes, lasers and cathode ray tubes, and ceramic crucibles for melting silicon in the photovoltaic solar cell manufacturing process.

Financial Analysis

The Big Five are pretty mind boggling for this company.

ROIC has been growing consistently over the last 5 years (6.14%, 14.07%, 21.39%, 20.64%, 31.61%). This gives a 5 year average ROIC of 18.77%.

The Equity Growth Rate has been phenomenol. 10 year average of 44.22% and a 5 year average of 59.73%. As I said, impressive.

Earnings Per Share Growth Rate is even more stunning. Over 100% each year for the last 5 years!

Sales Growth Rates over 70% for each of the last five years as well.

Stock Analysis

Calculating the sticker price on this stock, I arrive at a value of $97.57. Since Rule #1 investors only pay 50 cents on the dollar, that gives me a Margin of Safety price of $48.79. The closing price on May 1st was $59.87.

So that puts the current price at 38.6% discount to the sticker price. However, the current price is still 22.7% above my MOS price. The good news is that this is the first stock I have found below the sticker price!

Here is a summary of my findings.

Conclusion

Well, I am excited that my stock screener was able to find a company whose current price was actually below my sticker price! Some of the financial numbers seem pretty mind boggling. So I am going to check these numbers from other sources just to ensure that something is not “out of whack” from my data source.

I am also going to delve deeper into this stock and see what comes up.

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