Selling electronic components is generally a tough business with fierce competition and ongoing price pressure, but companies like Littelfuse (NASDAQ:LFUS) and Amphenol (NYSE:APH) have found paths to prosperity by focusing on margin improvement efforts, prioritizing higher value end-markets, and using M&A to build and shift the business. Kemet (NYSE:KEM) is hoping that a similar approach yields better results for its capacitor business.
Kemet has had a lackluster trajectory - revenue has grown by only about 1% a year on average over the last decade (and really not at all over many quarters), margins have been quite weak, and the company hasn't earned its cost of capital on any sort of consistent basis for a long time. And yet, the shares are up over 150% in the last year as efforts to vertically integrate in tantalum capacitors, shift toward higher-margin specialty markets, and reduce/streamline costs seem to be paying off and improving margins and cash flow. It remains to be seen whether Kemet has improved the business to a point where consistent mid single-digit FCF margins are a reasonable expectation, but if they have, the shares are not unreasonably priced.
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Kemet Looking To Specialty Markets And Efficiency Measures To Change Its Trajectory