Want a stock that is a global leader in its space, been profitable every year since going public in 2012, is conservatively operated and trades at less than half the book value? asks Benj Gallander, a value-oriented, contrarian investor and editor of Contra the Heard.
Throw in the occasional dividend, and know that insiders are well vested, owning almost 50% of the enterprise. If so, Caesarstone (CSTE) — our more conservative Top Pick for 2023 — might be for you.
This Israel-based corporation manufactures and markets engineered quartz and other surfaces in numerous countries throughout the world. You have likely eaten off one of their tabletops (as I do virtually every day).
In the United States, the market share for quartz countertops jumped from 5% to 20% since 2010. In Canada, they possess 28% of the market, up from 9% since 2010.
The stock got dinged on the recent quarterly results. Sales jumped 10.6% and look even better at 14.9% on a constant currency basis. Key to the increase was higher prices, partially fueled by that old bugaboo, inflation. Operating expenses rose slightly to 21.3%, on higher shipping and raw materials cost.
And for those concerned about cash, cash and cash equivalents are a robust $66.2 million. Perhaps the most discouraging thing for investors was the slight loss of $0.5 million, a definitive downdraft from the profit of $5.9 million in the quarter a year ago.
That said, the stock sunk about 20% when the numbers were reported and has trended lower since. Consensus analyst estimates was calling for a quarterly EPS of $0.27, but instead the company reported -$0.02. Talk about a swing and a miss!
Looking ahead, the outlook likely discouraged some potential investors. Revenue guidance fell from $710 - $725 million to $690-$700 million, but some of this is expected to be caused by foreign exchange rates. At the same time, slowing housing starts and a renovation slowdown will hurt the company.
The corporate dividend policy is very distinct. It will pay up to 50% of net income on a year-to-date basis, but if this is less than $0.10 a share, nothing is given. That means a spotty payout and there will not be one from the most recent quarter. Yes, this is another reason to discourage potential investors and cause some people to sell.
Geopolitical risk is also a factor here with the firm headquartered in Israel, where it has two of its four manufacturing facilities. Persistent tension and regular armed conflict in the region seem to have been going on forever and there does not seem to be an end in sight.
This stock traded north of $71 seven years ago. Five years ago, it was almost $40. From this angle, it appears to have the ability to regain form with lots of upside. A stock price north of $30 seems imminently reasonable.
