Friedman Industries: Great Prospects

HIGHLIGHTS

For a detailed analysis, go here.

• Friedman Industries (FRD) is one of those rare occurrences - a company that is selling at near net asset value. For the quarter ending 06/09, the company reported current assets of $43.9 million and total liabilities of $5.6 million.
• Inventory to Sales was 9.29% at the end of FY09. For the trailing 12 months, the Inventory to Sales ratio increased to 10.41%
• The EPS growth rate for the trailing 12 months is 38.2%. The three and five year growth rates are 30.2% and 43.5% respectively.
• FRD has a current ratio of 9.5 and no long term debt. This indicates that the company is financially secure. It is also indicative of a company that may not be putting its assets to the best use. Certainly, the company has room to employ some debt.
• The company has a Price/Sales ratio of 0.2 based on trailing 12 month sales. This is very favorable.

VALUATION METRICS

In determining the fair market value of Friedman Industries, I considered income statement, balance sheet and statement of cash flow data. I give more weight to the statement of cash flows and balance sheet than I do to the income statement and reported or estimated earnings. In my opinion, debt is the greatest determinant of risk and nothing substitutes for cash.

I assign a fair market value of $9.79 to the shares of Friedman Industries, Inc.

Valuation Ratios
	Current Company	MA Value	Industry Median
Price Earnings	4.20	6.99	14.30
P/E to Growth	0.13	0.16	0.40
Price to Book	0.70	1.20	1.20
Price to Sales	0.20	0.41	0.50
Price to Cash Flow	4.10	6.94	12.70
Price to Free Cash Flow	4.00	6.80	9.70

DISCLOSURE: The author has no financial interest in Friedman Industries, Inc.

Comments

[bookie71]

Did you consider the super competitive business they are in and the potential problems of obtaining the scrap they use?
Note: long on FRD

2009 Oct 27 10:43 AM

[Art Trader]

Cash For Clunkers = plenty of scrap to use. And tariffs slapped on Chinese tubular products can only help Friedman.

2009 Nov 05 03:48 PM