I've had my issues with the valuation of Multi-Color (NASDAQ:LABL) from time to time,
but I can't really complain about the overall performance of this
"under-known" label company, as the shares are up over 200% for me as an
investor and up about 150% from my first article
on the company for Seeking Alpha. While management still has work to do
on gross margin improvement, the company has delivered operating margin
improvements while using M&A to grow its revenue base and establish
foothold in growth markets.
Although the label industry isn't
really R&D-driven, Multi-Color doesn't really get its due for
innovation in areas like in-mold and heat-transfer labels, nor
value-added features like peel-aways, holographics, tamper resistance,
and other technically demanding innovations. I also wonder if the Street
appreciates that about half of the company's plants are still operating
below management's long-term margin targets and could offer significant
margin leverage in the coming years.
To be sure, I'm not saying
that Multi-Color is a cheap stock. I might still be too conservative
with my numbers, but I think 10% free cash flow margins are still at
least five years away (on a sustainable basis). The shares do trade at
an EV/EBITDA multiple below my expected EBITDA growth rate, but this is a
stock that I'd be a lot more aggressive on below $60.
Read the full article here:
Multi-Color Trading Short-Term Pain For Long-Term Gain
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