The Company operates in three segments, Housewares/Small Appliance, designs housewares and electrical appliances, Defense Products segment, manufactures mechanical assemblies and Absorbent Products segment manufactures diapers and adult products.
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Share price of $68.22 - $19 per share in net cash equals an effective stock price of 49.22 for a company that earned $6.98 per share last year. That's a P/E of 7.12 for a 10% per year grower. That's goofy.
add in the yearly special dividend averageing between $5-$8 per share the past 5 years and your getting a yield of 7-11% at today's price.
Conclusion: while budget cuts could hurt NPK, for sure, the cash stash, low valuation, and 7-11% yield make this worth holding on to for the time being.
I bought for a similar reason, though I think there are a few contrarian factors to point out:
1. Headwinds and margin erosion in the household goods / kitchen appliance facet of the business. -That one isn't a growing concern.
2. DOD downsizing and replacement of training ammunition expenditure with simulators. -I believe this is a long term factor that will tend to hurt, not help, Ms. Cohen's business.
3. Special dividend should not be counted as a long term recurring event. I think a more conservative model would be roughly double the dividend, excluding the special, and look at valuation based on that.
4. Fixed price contracts on ammunition that go to the lowest bidder, with low margins subject to commodity increases.
5. That said, I bought it too, and am considering more. I think capital allocation is good, I like the purchase of the non-lethal company last year, and I like the executive compensation and shareholder friendly leadership.
Thanks for the valuable feedback and great insight!
NPK is one of the businesses analyzed by Benjamin Graham in the Intelligent Investor. Ironically, at the time of this writing, NPK is selling at 8% below it's TTM Graham Number of $81, and 17% below it's 2011 Graham Number of $87.65.
I do not own NPK in real life, mostly bc of factor #2 that you've previously highlighted. The only CAPS picks that I actually own are BRK.B, UPS, and COH. Those three make up my entire RL portfolio, weighted roughly 40-30-30.
I'm still an investing n00b and am just trying to learn as much as I can, from as many players as possible.
Cheers!
Just announced $1 regular dividend and a $5.50 special dividend. $6.50 in divs = an 8.2% yield at current price. BOOM!
also, due to military spending concerns, I may close this pick after those dividends are paid.
After some consideration, instead of closing this pick with a +9 score, I think i'm gonna leave it open. After backing out $44.30 in tangible book value per share, you're effectively paying $27.98 for the future earnings of this business. That's like 13 or 14x earnings of the non-defense segments earnings, and like 3x 2011 total earnings. It's almost like getting the defense segment for free.
Again, with NPK you have zero debt, very solid historical returns on equity and capital, and decent, though inconisistent, growth. Also, great shareholder friendly management, and tons of cash. Wouldn't be surprised if NPK is on Berkshire's radar either.
Even if the defense segment does terrible, and the special dividends stop, this is still a decent deal. If the fears over the defense segment are overdone, then you'll have a bagger in a few years. If not, then you probably won't lose too much. Great risk/reward.