Underperforming Nordson Is Currently Overvalued

| About: Nordson Corporation (NDSN)

Nordson Corporation (NASDAQ:NDSN) has recently announced its results for the second quarter of fiscal year 2013. For the quarter ending on April 30, 2013, reported revenues were $382 million, a 21 percent increase over a year ago. This increase in revenues included a 7 percent increase in organic volume, a 16 percent increase related to the first-year effect of acquisitions, and a negative 2 percent impact related to unfavorable effects of currency translation compared to the same period a year ago. Operating profits were $82 million, net income was $55 million, and diluted earnings per share were $0.84. Compared to last year's second-quarter sales, operating profits, net income and diluted earnings per share were $315 million, $77 million, $52 million and $0.80, respectively.

Despite its strong performance in the second quarter of 2013, the company is unsure about its future performance due to tough market conditions. And this is the reason the company lowered its third-quarter earnings results.

About the Company

Nordson is multinational company that designs and manufactures dispensing equipment for consumer and industrial adhesives, sealants and coatings. The company also manufactures equipment used in the testing and inspection of electronic components as well as technology-based systems for curing and surface treatment processes. The company has direct operations and sales-support offices in approximately 30 countries.

Lower Q3 expectations:

Due to slow growth in the global economy and tough economic conditions, Nordson lowered its third-quarter expectations. For the third quarter, the company has now projected profits of $1 to $1.09 per share on $404 million to $419 million in revenues. On the other hand, analysts are expecting profits of $1.15 per share on $428.6 million in revenues. In other words, the company's third-quarter earnings outlook is weaker than analysts' expectations. This will hurt the stock price in the short term.

Stock price performance

Source: Ycharts

The above chart shows the percentage price change of Nordson compared to the industrial index and S&P 500, in the last six months. You can clearly see that Nordson's stock price has severely underperformed the industrial index and S&P 500 price appreciation of 17.53 percent and 17.3 percent, respectively. The most important thing to note here is that the stock price deprecation will be evidently reflected in Nordson's performance in the coming period, as predicted by the company.

Source: Ycharts

The above chart shows the percentage price change of Nordson compared to its competitors including 3M (NYSE:MMM) and Garaco (NYSE:GGG) since December 2012. This graph also supports the previous comment of underperforming stock as compared to its competitors. The drop in stock price clearly reflects its doubts on its future performance.

Multiple Analyses:

The above chart shows a comparison among valuation metrics of Nordson , the respective industry, S&P 500 along with its five-year average. We can clearly see that the price of Nordson's stock remains overvalued across every measure. Compared to Nordson's five-year average, the company stock price also evidently indicates that it is currently dropping and will continue to do so in the near future. This is also an alarming sign for the company because it has a negative effect on investors' decisions on the stock.


The root of the problem is that investors have been aware of the relative pricing of the company with respect to the industry. Their expectations were that the company's performance would drop in the coming quarters. The stock price also reflects the investors' awareness regarding the overvaluation of the company. Therefore, the stock price will undergo a process of correction very soon. This is why a sell recommendation is proposed for the near term. An undesirable level of volatility is impending for Nordson's stock price and investors should keep their distance from the stock until the market completes the price adjustment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.