Supply challenges caused a quarterly earnings miss for this industrial clothing maker, making the stock even more attractive. As well, industry growth should provide plenty of opportunities in the near future for the company.
Lakeland Industries, Inc. (LAKE)
From Validea Hot List Newsletter
Strategy: P/E Growth: Peter Lynch. This methodology would consider LAKE a “fast-grower”.
Lakeland Industries, Inc. manufactures and sells a line of safety garments and accessories for the industrial and public protective clothing market. The company’s product categories include limited use/disposable protective clothing, high-end chemical protective suits, firefighting and heat protective apparel, durable woven garments, high visibility clothing, and glove and sleeves.
Lakeland’s products are sold by its in-house customer service group, its regional sales managers, and independent sales representatives to a network of over 1,600 North American safety and mill supply distributors. These distributors, in turn, supply end user industrial customers, such as integrated oil, chemical/petrochemical, utilities, automobile, steel, glass, construction, smelting, munition plants, janitorial, pharmaceutical, mortuaries, and high technology electronics manufacturers, as well as scientific and medical laboratories.
P/E/GROWTH RATIO: PASS
The investor should examine the P/E (7.00) relative to the growth rate (35.11%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for LAKE (0.20) is very favorable.
SALES AND P/E RATIO: NEUTRAL
For companies with sales greater than $1 billion, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth rate high enough to support a P/E above this threshold. LAKE, whose sales are $140.0 million, is not considered large enough to apply the P/E ratio analysis. However, an investor can analyze the P/E ratio relative to the EPS growth rate.
INVENTORY TO SALES: PASS
When inventories increase faster than sales, it is a red flag. However, an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for LAKE was 41.04% last year, while for this year it is 27.57%. Since inventory to sales has decreased from last year by -13.47%, LAKE passes this test.
EPS GROWTH RATE: PASS
This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for LAKE is 35.1%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered ‘OK’. However, it may be difficult to sustain such a high growth rate.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for LAKE (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.
NET CASH POSITION: BONUS PASS
Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for LAKE (31.50%) is high enough to add to the attractiveness of this company.
John Reese, Validea Hot List Newsletter, validea.com, 877-439-0506, September 17, 2021