he year was 1980 and the financial condition of Kibbutz Sdot Yam, in the Haifa district on the shore of the Mediterranean Sea was dire. Debts were piling up and villagers were leaving the community that was founded in 1936.
The tile manufacturing business was struggling, and demand for the tiles was decreasing. New innovative processes were being developed in Europe, and the kibbutz’s terrazzo tile factory was in bad need of a major remodeling job.
Flash forward to 2012, and the manufactured quartz slabs that the Caesarstone factory is turning out are helping people do remodeling of their own in 42 countries around the world.
It has not been an easy hill to climb, but the new factory turned profitable in 1993 and has experienced 30% annualized growth from 1999 to 2010. It is estimated that the company now has a 13% share of the global engineered quartz market. The remarkable turnaround story led to an IPO (initial public offering) on the NASDAQ for the company in February of 2012.
In November, I wrote about the current rebound that is taking place in the housing and construction sector of our economy. With 100-year-low interest rates, the building sector continues to be one of the top ranked sectors in the market right now. It is not just the homebuilders who are benefiting, but also countless companies that are tied into the building industry in one way or another. In other words, Caesarstone is sitting in a sweet spot right now.
Since coming public, the company has worked its way up from its $11 offering to a current price (December 11) in the $16 per share area. I like the fact that this company has been growing by 30% over the last decade, but what price are we currently paying for that growth?
Caesarstone is expected to earn $1.49 per share in next year. With the stock currently trading at around $16, this means that the shares are currently trading at about 11X forward earnings. This is a very reasonable valuation.
I am assuming that the company can continue to grow by 15% per year over the next five years. This would put its earnings at around $2.50 per share at that time. With a reasonable multiple on earnings of 12-13 X, the shares could trade north of $30 at that time. This is some very good upside potential.
As always, there are many different forms of risk along the way. This is only a $550 million dollar small-cap company. It would only be appropriate for aggressive investors in a well-diversified portfolio. Clients of Gunderson Capital Mgt. or their advisor currently have no position in yet another Israeli success story.
All data from Best Stocks Now app.