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Balchem Steady As Ever
Balchem (Nasdaq: BCPC) may be an unfamiliar company to most, but its operating history would have one thinking it was one of the blue chips. If it weren't for the company's $760 million market cap, it may well be. When I examine the Value Line Index report for Balchem, I see a company that has increased its sales every year during the past decade except for a respectable 5% decline in 2009. Profits, on the other hand, have increased every year for the past 10, including 2009.
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More Of The Same
For the quarter ended June 30, Balchem delivered record net earnings of $8.3 million as compared to $6.9 million for the prior year comparable period - an increase of $1.5 million, or 21.4%. Second quarter net sales of $61.5 million were approximately 16% greater than the $53 million result of the prior year comparable quarter. Diluted net earnings of 28 cents per common share, versus 24 cents for the prior year comparable period, increased 16.7%. While management remains cautiously optimistic about the rest of the year, it does expect some volatility going forward.
Yet over the long-term, Balchem's history suggests a continued future of respectable growth. The company's three business segments provide some of the world's biggest companies with the essential ingredients and nutrients they need to make their products. Consumers may never ever hear of Balchem, but they likely support the company with the many household products they purchase.
Around Us Every Day
Balchem's food, pharma and nutrition segment provides proprietary micro encapsulation, granulation and agglomeration solutions to a variety of applications in the human food, pharmaceutical and nutrition marketplaces. The essential ingredients that go into products like cereal, baked goods and pharmaceutical products are Balchem-produced products. Customers like Kellogg (NYSE: K), Kraft (NYSE: KFT) and General Mills (NYSE: GIS) require these ingredients to produce their various products. And because these purchases represent a very tiny fraction of the overall food costs for these titans, Balchem hasn't experienced tremendous volatility in its sales. (For related reading, see Value By The Book.)
Through ARC Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries. This division is the primary supplier of ethylene oxide, which is used as a medical device sterilant. The animal nutrition and health segment manufactures and supplies products to numerous animal health markets and certain derivative products into industrial applications.
Paying For Performance
While many consumers many not know of Balchem, Mr. Market sure does. Shares trade for 28 times earnings and an ultra-rich five times book value. Clearly a short-term hiccup could lead to a buying opportunity, but one would have spent the last decade waiting for that to happen. Even when shares tanked during the economic meltdown to $15 each, they still traded at nearly three times book. On the other hand, book value is not necessarily the best proxy for this company, but rather return on equity and P/E ratio. While still high at 28 times earnings, it might not appear that way five years down the road. (For more, see Five Low Price-To-Book Value Stocks.)
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More Of The Same
For the quarter ended June 30, Balchem delivered record net earnings of $8.3 million as compared to $6.9 million for the prior year comparable period - an increase of $1.5 million, or 21.4%. Second quarter net sales of $61.5 million were approximately 16% greater than the $53 million result of the prior year comparable quarter. Diluted net earnings of 28 cents per common share, versus 24 cents for the prior year comparable period, increased 16.7%. While management remains cautiously optimistic about the rest of the year, it does expect some volatility going forward.
Yet over the long-term, Balchem's history suggests a continued future of respectable growth. The company's three business segments provide some of the world's biggest companies with the essential ingredients and nutrients they need to make their products. Consumers may never ever hear of Balchem, but they likely support the company with the many household products they purchase.
Balchem's food, pharma and nutrition segment provides proprietary micro encapsulation, granulation and agglomeration solutions to a variety of applications in the human food, pharmaceutical and nutrition marketplaces. The essential ingredients that go into products like cereal, baked goods and pharmaceutical products are Balchem-produced products. Customers like Kellogg (NYSE: K), Kraft (NYSE: KFT) and General Mills (NYSE: GIS) require these ingredients to produce their various products. And because these purchases represent a very tiny fraction of the overall food costs for these titans, Balchem hasn't experienced tremendous volatility in its sales. (For related reading, see Value By The Book.)
Through ARC Specialty Products, Balchem provides specialty-packaged chemicals for use in healthcare and other industries. This division is the primary supplier of ethylene oxide, which is used as a medical device sterilant. The animal nutrition and health segment manufactures and supplies products to numerous animal health markets and certain derivative products into industrial applications.
Paying For Performance
While many consumers many not know of Balchem, Mr. Market sure does. Shares trade for 28 times earnings and an ultra-rich five times book value. Clearly a short-term hiccup could lead to a buying opportunity, but one would have spent the last decade waiting for that to happen. Even when shares tanked during the economic meltdown to $15 each, they still traded at nearly three times book. On the other hand, book value is not necessarily the best proxy for this company, but rather return on equity and P/E ratio. While still high at 28 times earnings, it might not appear that way five years down the road. (For more, see Five Low Price-To-Book Value Stocks.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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