Think, Invest! by

Monday, June 18, 2007

Fore! ALDA drives value

Imagine a company with an $85-million-dollar market cap, with $18 million in unrestricted cash, $44 million in total working capital, $51 million in total stockholder equity and which generates about $11 million in earnings a year. It trades just above 1 times sales, 8 times earnings, and yields just under 4%. In addition, this company has increased sales from under $38 million in 2003 to over $72 million in 2006.

Sound too good to be true? It’s not.

The company is ALDA, manufacturer of golf club shafts.

The reason I believe that ALDA is trading at such a low valuation is because of its performance in the 1990s. The company went public in 1993 and closed its first day of trading at $28.38 (adjusted). Today, the stock trades around $15. According to the company’s SEC filings: “During the 1990’s, the graphite golf shaft industry became increasingly competitive, placing extraordinary pressure on the selling prices of the Company’s golf shafts and adversely affecting its gross profit margins and level of profitability. The Company’s average selling price decreased by 64% from December 31, 1990 through December 31, 2002. The pressure was mainly attributed to the increased competition for OEM production shafts, and a shift of our customers away from branded shafts to customized OEM production shafts.”

However, in 2002 ALDA began to change course. And the stock has recovered from around $1.50 a share. Again, according to the company’s SEC filings: “The Company’s response to the pricing pressure it faced during the 1990’s, and continues to face in the OEM production shaft segment, has been to vertically integrate, reduce its cost structure and to focus on continued penetration of the branded and co-branded shaft segments.”

In addition, ALDA opened factories abroad: “the Company also reduced its cost structure by shifting more of its shaft production to lower cost labor markets, such as Mexico, China and in 2007, Vietnam.”

It also became trendy again: “Beginning in 2003, the Company was able to achieve higher average selling prices as it enjoyed increasing success in the branded segment of the business…The introduction of co-branded shafts and the continued success in the branded segment had the effect of increasing the Company’s average selling prices over the last few years. The Company’s average selling price increased by approximately 70% for the year ended December 31, 2006 as compared to the comparable period in 2002.”

In 2006 and 2007, the company has driven ahead: “The Company has re-emerged over the past couple of years as an innovator in the branded segment of the business, in which shafts tend to sell at higher prices and gross margins than the customized OEM production shafts sold to club manufacturers...In 2006, PGA Tour, LPGA Tour and Nationwide Tour professionals using Aldila NV TM or VS Proto TM shafts in their clubs have won a total of 32 Tour events. The Aldila VS Proto TM and NV TM Hybrid shafts combined have been the number one hybrid shafts at every event this year on the PGA Tour, according to the Darrell Survey Company. In addition, Aldila Hybrid shafts won the Annual Golf Magazine Club Test for 2006. Forty club testers evaluated hybrid clubs for Golf Magazine and clubs featuring Aldila Hybrid shafts received the highest rating in every category for hybrid clubs. Overall the Aldila shafts helped give the testers the best feel, playability, forgiveness and distance with their hybrids compared to the competition. As the 2007 PGA Tour has began, Aldila was once again the leading shaft manufacturer represented at the Mercedes Championship, winning both the wood and hybrid shaft count.”

Given the valuation, it seems as if all this cost reduction and sales improvement is available to investors for next to nothing!

If the trendiness continues, there’s only one thing to say: Fore!


Post a Comment

<< Home