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Many of my recent entries have been about my trades---some successful and some not----and I haven't been writing quite as much about the kind of stocks that I refer to as my vocabulary of investable companies. These are companies that meet my fairly well-accepted criteria of consistent revenue and earnings growth, stable shares, positive free cash flow, and healthy balance sheet. It was a relief yesterday when I saw an 'old favorite' of mine, Apogee Enterprises (NASDAQ:APOG) make the list of top % gainers. While I do not limit myself at this time to selecting stocks off these gainers lists, I do find them helpful in identifying companies that may have enough momentum to exhibit price appreciation in a prolonged fashion.

I first discussed Apogee on this blog back on September 20, 2007, when the stock was trading at $25.76. As I wrote this on Friday, Apogee was trading at $10.10, up $.56 or 5.87% on the day. However, the stock has declined markedly since my entry, actually down $15.66 or 60.8% since posting. Not exactly a stellar pick from last year, is it? I do not own any shares or options of this company.

Apogee is heavily involved in architectural glass, and associated products and services. It does also have some exposure to the picture framing market and optical display business. However, the construction slump that we have been experiencing in the United States has brought down shares of construction-related stocks like Apogee.

I would like to take you through some of the things about this company that I still find attractive even though the nature of the business itself, being associated with the building industry, concerns me.

First of all, the company jumped Thursday after they announced 3rd quarter 2009 results and maintained guidance on the rest of the year. Revenues for the quarter came in at $240.4 million, up 14% from the prior year. Earnings from continuing operations were $.63/share, up from $.26/share. Net earnings, including discontinued operations, came in at $.63/share, up from $.38/share last year.

If we review the Morningstar.com "5-Yr Restated" financials on APOG, we can see the picture of steady revenue growth from $490.8 million in 2004 to $881.8 million in 2008 and $937.7 million in the trailing twelve months [TTM].

Earnings have similarly increased during this period from a loss of $.20/share in 2004 to $1.67/share in 2008 and a dip to $1.66/share in the TTM.

The company also pays a dividend and has been increasing it annually from $.24/share in 2004 to $.28/share in 2008 and $.30/share in the TTM. Outstanding shares have been very stable with 28 million shares reported by Morningstar in 2004, and 29 million in the TTM.

Free cash flow has been positive and generally increasing with $5 million in 2006 growing to $31 million in 2008 and only dipping slightly to $23 million in the TTM. The balance sheet appears adequate with $6 million in cash and $244 million in other current assets resulting in a current ratio of 1.46.

The valuation of this stock has become even more compelling now with the discounted stock price. Per Yahoo "Key Statistics", this is a small cap stock with a market capitalization of only $280.81 million. The trailing P/E is reported at 5.93 (!), with a forward P/E expected at 8.71 (fye 01-Mar-10). The PEG works out to a very attractive 0.39. (Generally I have found stocks with PEG ratios between 1.0 and 1.5 to be 'acceptable'.)

Currently, the company pays a small but increasing dividend but with the decrease in the stock price this works out to an attractive 3.6% yield. The last stock split was back on February 18, 1997, when the company split its stock 2:1.

Looking at the point & figure chart on APOG from StockCharts.com, we can see that the stock price peaked back in July, 2007, at $29. The stock experienced growing weakness through August, 2008, when it managed to reach a level of $21, then broke down completely in September of this year, dipping as low as $5.50/share. The stock appears to be showing some recent strength but it would need to trade above $15.50, at least per this chart, to suggest some technical evidence of breaking-out above resistance.

click to enlarge

Two additional stories from Yahoo also suggest an effort by management to continue to support the price of this stock. First of all, was this story from October 8, 2008, when the company announced an increased dividend, and this story also from October 8, 2008, when the company announced an increase in its share repurchase authorization.

Thus, I find myself once again writing about this small Minneapolis-based firm. I enjoy writing up stocks from the Midwest regardless of how many inches of snow we may have received last night!

But seriously, even though I do not own any shares, the company reported a great quarter in the face of a dismal construction environment, has a terrific longer-term track record of increasing revenue, earnings, and even its dividend, and has compelling valuation numbers. On the downside is the ever-present reality of the awful building and home-construction market. In addition, I have been a bit wary of stocks trading at just-above $10, and I have had problems as well with these very small-cap companies. But this may well represent a good opportunity in this stock, and it deserves another mention!

Disclosure: Author does not own APOG.

Source: Apogee Suffers in a Tough Sector, But Is Still Compelling