Copyright 2006 The New York Sun, One SL, LLC
All Rights Reserved
The New York Sun
February 6, 2006 Monday
SECTION: BUSINESS; Pg. 10
LENGTH: 529 words
HEADLINE: Graphite Golf Shafts Driving Earnings
BYLINE: David Dalley
DATELINE: COMPANY: Aldila Incorporated SYMBOL: (Nasdaq: ALDA) PRICE: $29.37 (as
of 4 p.m. February 3) 52
BODY:
ERIC BARDEN PORTFOLIO MANAGER TEXAS CAPITAL VALUE AND GROWTH FUND
COMPANY: Aldila Incorporated SYMBOL: (Nasdaq: ALDA) PRICE: $29.37 (as of 4
p.m. February 3) 52-WEEK RANGE: $14.11-30.20 MARKET CAPITALIZATION: $157.63
million
Eric Barden is a portfolio manager at the Texas Capital Value and Growth Fund
with more than $84 million of assets under management. California based Aldila
Incorporated designs and manufactures graphite golf shafts in America. It's a
small company, but as Mr. Barden explains to David Dalley of The New York Sun,
it has big potential.
What does Aldila do?
They are the market leader in the production of graphite golf shafts. They
sell the shafts on a wholesale basis to the equipment manufacturers, and also to
golf specialty stores.
Why do you like the stock?
Well for one thing, it's extraordinarily cheap. It's trading at just 13 times
earnings, with a five-year annual average growth rate in excess of 100%.Year
over year in 2005, its earnings grew by roughly 100%. That's matched by strong
revenue growth, up 40% in the last 12 months.
Why has it experienced such strong growth?
My guess is that they picked up some more contracts with some of the major
producers. Keep in mind that this is a pretty cyclical business. Essentially
they sell what would be classed as 'luxury goods.' When times are tight, people
won't spend money to get their clubs reshafted. This cyclical consumption is
especially noticeable in their core market, which is the high-end consumer. When
you have a difficult stock market, for example in 2001 and 2002, business goes
down. But right now, the top end is doing really well, so I think that that's
what's driving the earnings. And that's a situation we expect to persist into
the long-term.
What is Aldila's strategy going forward?
A lot of it will be to just continue producing a good quality product. Right
now they're one of the leading shaftmakers for tour players. As long as that's
the case you'll see all of the weekend warriors following suit. They don't have
a monopoly, but they are a very strong market leader in a fairly specialized,
niche market. My sense is that as long as the economy holds up, people will
continue to put money into golf clubs. People will pay a lot of money to shave a
few strokes off their game.
Why is now the right time to buy?
Right now this stock isn't on the radar of many investors. Its P/E is 13.
Now, given its earnings growth, it should have a P/E of at least 16. That
implies at least 20% upside from where we are now, on top of any earnings
growth. It also has a 2% dividend yield which is rare for such a small company.
I'm comfortable predicting 50% earnings growth this year.
Where do you think the stock price is headed?
I wouldn't be surprised if it were a $50 stock by the end of the year.
What are the risks?
The risk is in the economy. If there was a big crash in the housing market,
or in the stock market, or anywhere that affects the high-end consumer and puts
them under stress, then this company would be in trouble. The risk isn't in
terms of competition, and the demand will remain strong as long as the overall
economic environment for the high-income consumer holds up. |
