Monday, May 19, 2014

CMT 2014 Q1

Core Molding Technology has been doing well.  It has almost doubled since the beginning of 2013 and it's up about 30% since last summer.  It is more or less proceeding as I had hoped.  My thesis on this position isn't complicated.  This is just a basic small cap that has been a little undervalued.  Here are quarterly income numbers for the past few periods and a chart of the stock price over the past 3 years.

My main thesis here was that as CMT established more revenue outside of Navistar and PACCAR, they would increase top and bottom line numbers, but that also the added diversification would lead to some multiple expansion.  I think we have already benefitted from this factor.  In the period of time coming out of the recession, Navistar and PACCAR had accounted for as much as more than 80% of CMT sales.  By 2014 Q1, other customers accounted for nearly 1/2 of revenues.  As of 2014 Q1, Yamaha now accounts for about 10% of revenues and Volvo 25%, with more than 10% coming from other customers.  After some fits and starts, they have performed well in this area.

Over the past year or so, revenues from PACCAR seem to have declined.  This appears to be a transitional issue, but this is the main issue to watch, going forward.  If their PACCAR business recovers, then all the pieces seem to be in place for a valuation in the high teens to $20 range.  If not, then it may be prudent to take profits in the current range.

This is a decent position, but it isn't going to provide any sort of moonshot return.

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