As a manufacturer and distributor of lumber and hardwood flooring, Goodfellow (GDL) is currently in a tough industry. The collapse of the US housing market has drastically reduced demand for products in this industry, and Goodfellow correspondingly showed a year-over-year sales decline of 8% in the last quarter. In that same time period, however, the stock price has dropped some 40%, possibly offering long-term investors an attractive price.
The company trades for about $50 million, but an examination of its balance sheet reveals some downside protection for investors. The company shows A/R of $51 million, inventories of $63 million, and total liabilities of $50 million. As such, Mr. Market is offering the investor a 20% discount on inventory, with the company’s fixed assets, customer relationships (of which there are 7,000) and manufacturing know-how thrown in for free!
The company has also remained profitable each quarter throughout this downturn, although this is slightly misleading. The company had an operating loss of $800 thousand in its most recent quarter, but due to a one-time gain it showed a net profit of over $2 million. Nevertheless, the company has cut its costs by over 10% in most of its divisions (compare this to the year-over-year sales drop of 8%). Furthermore, the seasonality of the company is worth noting, as the summer quarters generally result in operating profit figures which dwarf those of the winter months.
A recovery in housing may not be on the horizon for a while. However, for investors looking for minimal downside risk with the potential for capital appreciation, companies like Goodfellow may offer such opportunities.
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Disclosure: Author has a long position in GDL
