A disciplined approach to valuation usually serves an investor well, but sometimes the right decision is to loosen up your standards and buy into a good situation. That’s the dilemma I face with Kadant (KAI) right now. The shares are not conventionally cheap, but I like the company’s leverage to areas like paper/pulp, wood fibers, and material handling, particularly with strong trends in packaging, including e-commerce and new sustainable substitutes for plastic packaging, and material handling.
As is, with mid-to-high single-digit revenue growth, mid-teens FCF margins, and a 14x forward EBITDA multiple, Kadant is a borderline “buy” call. I am concerned about the risk of broader derating among industrials, but Kadant shares are already down about 20% from their 52-week high and I do think this is a name well worth following.
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