I, too, believe this is a superbly run company, and have owned the stock for many years. I think the underperformance over the past year or so is attributable to a couple of factors:
1.) growth has to occur off of a larger base, and it is getting increasingly difficult to make bolt-on acquisitions that have a meaningful earnings impact without running the risk of overpaying for a target or facing tough integration issues. For example, the Tremco deal actually increased the cyclicality of RPM's earnings.
2.) acquisitions and RPM's compensation policies result in issuance of stock, diluting current owners. While revenue growth increases, eps growth generally lags, sometimes significantly. This discrepancy seems to have increased as the company has grown over time.
3.) I recall reading about some environmental liablilities, though I am not sure if they are already on the balance sheet or not. And don't forget, this is a cyclical chemical-sector company competing in a tough macro environment.
I'm still long and buying on dips because I like the management, the brand leverage, and the dividend. My biggest concern is the increasing share count and the day when the 51 year record stops...I think that track record is keeping people in the name. |
