Stocks like this one are exciting and could possibly provide explosive gains, but are obviously very risky plays which is why they fall under the title of “Speculation Station.” I love new technologies that can be labelled as “disruptive” because it is fun to speculate how they will change the face of an established industry. This company has such a technology.
Exide Technologies (XIDE) makes and supplies lead-acid batteries for the transportation and industrial energy applications. The company offers transportation batteries comprising ignition and lighting batteries for cars, trucks, off-road vehicles, agricultural and construction vehicles, motorcycles, recreational vehicles, marine, and other applications.
Strong Demand
The company reported strong EBIT growth of 120% for its fiscal 2011 second-quarter. CEO Jim Bolch was pleased at the improvement in gross profit, as well as lower operating expenses and higher unit volumes. He also said that demand was strong and getting stronger for its products as global markets strengthen. Bolch expects the second half of the fiscal year to be even better than the first.
It’s not often you get to buy a young, cutting edge technology company for such cheap multiples, but that opportunity is here. It is currently trading at about 11x next year’s estimates, which have gone up sharply over the past 90 days. Just three months ago, analysts were expecting the company to earn 37 cents per share, now it is 81 cents. Clearly analysts are liking what they are seeing with the company to raise their forecasts that significantly.
I also love the fact that it is cash flow and free cash flow positive. XIDE is carrying some debt, which is expected for a company in this industry, but the cash flow situation should make paying interest payments no problem. A cheap, profitable company with growing cash flows and strong demand for its cutting edge products. Where do I sign up? This could easily be a $12-$15 stock if current earnings trends continue. Investors need more proof of strong results before they pay up for the company’s earnings, but that day could be on the horizon.
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