Very nice report from HWG. P/e based on current earnings is very low.
To me it's a question of sustainability of those earnings.
"Sales of specialty fabric to U.S. military contractors accounted for $34,657,000 and $28,394,000 in the 2010 and 2009 first quarters, which represented 73.5% and 71.6% of Brookwood's sales, respectively."
If HWG is going to earn more than $9/sh this year (first quarter already $3.44/sh, better than last year's $1.94), then I surmise there must be something special indeed about HWG's "specialty fabrics". Who knows what though.
My premise is that gov't will allow "decent" profits, but might want to review contracts if there's >$10/sh earnings on $36 book value = >28% roe. Excessive enough that the gov't might actively try to reduce prices paid for HWG's products.
Back otoh, it's the gov't contractors who pay for HWG's product, so maybe it's a relatively obscure and small amount in the contract amount for the product, whatever it is, developed by the contractors for the government. Further, the one analyst (per Yahoo) following the company, predicts $10.79/sh for 12/'11. So he/she believes the earnings are sustainable for another year at least.
And back otoh, HWG has had an erratic earnings history. Losses in '00-'02, losses again in '06, '07. HWG has traded much higher than current ~$45 in previous years. Maybe though that was partly due to their oil lp, which now is in bankruptcy.
My summary: Irrespective of current stock price, it's a tough stock for me to be conclusive about. |
