Knowing when to exit a successful position is one of the hardest things in investing; good companies have a way of surprising you, and the market is often willing to reward excellence with higher multiples than the fundamentals might otherwise support. So while I thought KMG Chemicals (NYSE:KMG) was fairly valued a couple of years ago when I last wrote about this small specialty chemical company, I can't say I'm all that surprised that the shares are up another 25% or so since then (doubling the S&P 500 and doing pretty well against a grab-bag of other specialty chemical names).
Unfortunately, I find myself in a familiar position with the shares. I don't doubt that management can and will find more value-adding M&A opportunities, but the shares already seem to factor in positive developments from here. While I think a credible argument can be made for a fair value near $40, that really doesn't leave much upside for a company that I think will find organic revenue growth somewhat challenging to achieve.
KMG Chemicals Underfollowed But Not Unloved