Cereplast Offers Great Long Term Opportunity
September 30, 2011
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I won't come out and say that Cereplast (CERP) is the best deal ever - because too many people try to call the next big thing (try allowing Motley Fool to email you their newsletter for a few weeks and you'll see how annoying it can be). But I will come out and say that Cereplast offers a very great long term opportunity.
Now I know what you're thinking: many stocks are currently undervalued due to the market turmoil caused by international government debt. That is true. However, Cereplast was very undervalued before the mini market crash this summer. As of the close on Friday, Cereplast had a market cap of just $44.12 million, which is absolutely absurd given the true potential and current performance of the company.
In the days leading up to Cereplast's Q2 earnings report on August 15th their stock surged 32% (from $2.86 to $3.78), but retracted with the market to its current valuation at $2.80. What exactly did they report?
-As of the first six months of 2011 they had net sales of $14.9 million compared to $936,000 a year ago (nearly $14 million more).
-As of June 30th, 2011 cash equivalents were $13.1 million, up from just $2.4 million on December 31, 2011. Most due to an offering of notes in May ($12.5 million).
-Shareholder equity had increased $7.9 million in the same period.
Even better, (it gets better? yes baby birds, it gets better) they reiterated their 2011 guidance of $28-34 million. How is that better? Well, just about all of their revenue growth is in Europe. Now before you close the page and say "Well, that's a s****hole I don't want to invest in", consider this:
Cereplast sells consumer plastics made from plant starches. So recession, depression, it doesn't matter - plastic bags are not threatened. Many European cities have plastic bag bans, which is exactly how Cereplast captured market share and exploded in the first place. I can't say they won't get hit by more bad news out of Europe since they probably will. But that just makes them even more attractive.
Their cash equivalents alone (as of June 30th) make up 29.7% of their market cap. Let's say cash equivalents stay constant by year's end and their stock closes around $3.50 (a 25% gain). Cash would still make up 23.7% of their market cap!
Do your due diligence (research, research, research) and keep an eye on Cereplast. I wanted to get in earlier this summer if it closed below $4.00, but I added to another position instead. Looks like that paid off, because I am salivating every time I look and see Cereplast down another $0.05 everyday. Sorry for all these darn words, but its a great long term growth opportunity. Stay Foolish!
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