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UFP Technologies, Inc. (NASDAQ:UFPT) is a manufacturer of engineered packaging solutions for medical and scientific, automotive, aerospace and defense, computer and electronics, industrial, and consumer markets. What impressed me about the Company is their successful turnaround after 2005. From 2000 through 2004 sales ranged from $60.9 million (2003) to $74.5 million (2000) with net losses in three out of the five years and small profits in the other two years. In 2005 sales increased to $84.0 million but net income was only $659,000 and EPS $0.14. After 2005, net income and EPS have increased sequentially in each calendar year through 2009 and in the 12 months ended March 31, 2010 sales reached $106.3 million, net income was $7.1 million and EPS $1.12.

The Company has grown the business and increased profitability by employing a strategy that includes organic growth, growth through strategic acquisitions, as well as focusing on controlling expenses plus improving operating margins. They overcame the significant challenges caused by the tanking economy in the first two quarters in 2009 and ended up reporting growth in sales and earnings in the third and fourth quarters in 2009, as well as the first quarter in 2010. During 2009 the company invested approximately $4.3 million, which included about $2.4 million for acquisition related assets of three businesses and approximately $1.9 million for new manufacturing equipment.

Diluted earnings per share increased by 15.7% from $0.82 in 2008 to $0.94 in 2009. In Q-1 2010 sales increased 32.8% versus Q-1 2009 ($28.7 million versus $21.6 million) and EPS increased from $.06 in Q-1 2009 to $0.23 in Q-1 2010. The accomplishments of UFPT since 2005 are evident when comparing the balance sheets as of 03-31-10 and 12-31-2005 as shown below:

$ Amounts in 000's

ASSETS

3/31/2010

12/31/2005

Cash & Eqvlnt's

$ 17,136

$ 265

Acct's Recvble

13,216

15,300

Inventory

7,498

6,442

All Other Assets

22,569

21,993

Total Assets

$ 60,419

$ 44,000

LIAB. & EQUITY

Liabilities

$ 19,935

$ 29,239

Shrhldr Equity

40,484

14,761

Total Liab. & Eqty

$ 60,419

$ 44,000

Despite the company growing annual sales from $84 million in 2005 to $106 million (12 months ended 03-31-2010), and the investments made in 2009 noted above, cash and equivalents increased from $265,000 on December 31, 2005 to $17.1 million on March 31, 2010. Operating assets (accounts receivables and inventory) remained approximately the same, total liabilities declined from $29.2 million on December 31, 2005 to $19.9 million and shareholders' equity increased from $14.8 million at December 31, 2005 to $40.5 million as of March 31, 2010, which is a clear reflection of management’s accomplishments after 2005 to date.

Using the closing price of $8.80 on May 7, 2010, UFPT has a market cap of approximately $58.5 million, which is just 0.5 times annual sales, and a P/E multiple of only 7.9 X EPS in the 12 months ended March 31, 2010 as shown below:

$ Amounts in 000's

Except for Per Shr Data

12 Months Ended Mar 31

2010

2009

Sales

$ 106,323

$ 103,631

Opting Inc.

10,073

7,091

Net Inc.

7,095

4,319

EPS

$ 1.12

$ 0.68

Stk Price 5-7-10

$ 8.80

PE Ratio

7.9X

Market Cap

$ 58,450

Mkt Cap / Sales

.5X

Net Book Value

$ 6.10

I’ve seen estimates from just one analyst showing annual revenues of $117 million for 2010 and $123 million for 2011, with EPS numbers of $1.04 in 2010 and $1.14 in 2011. These amounts appear too conservative to me and I expect the Company will beat these numbers in the calendar year 2010 alone. I do believe UFPT is undervalued at its current price based on fundamentals and the good results achieved by management since the turnaround after 2005.

A copy of an excel worksheet report on UFPT is available by emailing me.

Disclosure: LLG Equities, LP has a long position in UFPT

Source: UFP Technologies: Sound Financial Management Results in Good Growth