Tuesday, January 11, 2011

Comment on Conrad Industries (CNRD) Long Idea

Here's a comment on my Conrad Industries (CNRD) long idea:

Good pick. I am long since $7 last summer.

A few other data points. On the positive side:

1) its a pink sheet stock but their disclosure is excellent, easily matching the typical listed micro cap, and management is in the habit of underpromising and overdelivering
2) great track record of growth on the sales side over the past five years especially, around 20%
3) no wage pressure at the moment (unlike 2006-07) because unemployment remains elevated in south Louisiana
4) similar company (Tod Shipyard in Washington state) was acquired for the equivalent of $16 or so per share for Conrad

Negative:

1) if the Gulf de facto moratorium on drilling continues (its de facto because while the ban is lifted it is still difficult to impossible to get a permit I understand) the ship building ecosystem eventually will get hurt, possibly badly
2) the 2006-07 peak earnings might not be reached for awhile given that the hurricane rebuilding was a signficant tailwind

I have fair value of $16.50 based on Tod acquisition and a discounted cashflow analysis (using $1.40 in current earnings, 8% near term growth, 5% terminal growth, and a 14% discount rate)
The Conrad idea has been working really well.

1 comment:

Eric said...

Could be a self-fulfilling prophecy: average volume is so low that almost any additional interest will cause the stock to rise. The mind boggles to think what might happen were it to get a mention on 'Fast Money'.