Goodfellow Could Deliver When Housing Recovers

As a manufacturer and distributor of lumber and hardwood flooring, Goodfellow (GFELF.PK) 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.

Comments

[HardwoodFlo...:]

Goodfellow is a great company. As a hardwood flooring contractor in the seattle area I used to buy through a subsidery of theirs (Hardwood Flooring Distributors). They had the best products inthemarket place for "true" hardwood floroing contractors including brands that were focused on specialy prodcuts and that were from the best "northern" mills in the US that were by far the market leaders- I can think of one in particular that I used to keep them cleaned out of that had the best long length product and maple any where- it was out of Wisconsin- I think. Anyway...

I agree with your assesment. There is a fair amount of backside demand out there. I agree that the job market needs to stabalize before a housing "recovery" takes place.

The truth is that 400,000 units of single family homes is a pitance of a pace for residential housing. While the remodel numbers have been in the tank for the past 3 years, as home equity lines were the first to go, people are just begining to spend real income on their up grades. I think you will see a uptick in home remodel as the consumer (M2-M3 Money Supply) retrenches.

Still, new housing contruction won't take hold for a while. When it does, there will be lot of catching up to do. Specifically, the fact that housing starts have never been this low for this long ever. It's like the remodel factor. For a while it's like pushing rope, then the slack goes out and there will be a whiplash.

The economy is so different than it was in the past. the huge amount of government workers, health care representing 30% of GDP, tech, manufacturing and the rest is so much broader now. In a way this whole cycle has seemed a bit like Y2K- with experts telling us to buy gold, stock pile guns and prepare for civil unrest- it's just crazy.

Will there be a "fast" housing recovery- no. Will there be one-yes. Will it be a more senseable recovery- yes. By all acounts 1MM single family units is below demand. That's a 100+% increase from where we are now.

Apr 02 06:00 PM