Moldflow Corporation: Just One Word - Plastics

Moldflow Corp. (MFLO) gives plastic parts manufacturers an injection of software to keep things moving smoothly. The company provides design analysis and manufacturing applications used to design and produce injection-molded plastic parts. Moldflow's software offers manufacturers a way to test designs and optimize their production processes, including applications that allow customers to automate and monitor their production lines. The company also offers a variety of maintenance, support, and training services. Moldflow's customers have included Apple (AAPL), BMW, GE Plastics (GE), Mattel (MAT) and Samsung.

Right off the bat, you need to know this is a $230 million market cap stock. That means it has only 11.45 million shares outstanding when multiplied by its price of 22, giving it about a $230 million market cap valuation. Stocks of this size usually have higher volatility. Keep that in mind.

Earnings are on the move at MFLO. In 2004, they were 29 cents a share, then jumped to 58 cents a share in 2005. 2006 they went down to 28 cents a share. But this year, look for 75 cents and next year 85 cents. That's because the company is selling its Manufacturing Solutions division, the one that brought in 26% of revenues but operated at a loss for fiscal 2007. Now that the money loser is leaving, revenues will decrease but profits will increase.

New products are being introduced, most notably Moldflow Plastic Advisors, a software program that contains features such as advanced 3D analysis for complex parts design. That will improve sales domestically and internationally. MFLO does well in Asia where 33% of revenues originate. It recently released a Chinese language version of its Moldflow Plastics Insight.

Some numbers: Current assets outnumber current liabilities by 3.5 to 1, with the company sitting on $65 million in cash. That could be used for acquisitions, heavier research and development or a stock buyback, something the company did in the most recent quarter for 249,000 shares.

Net profit margins should jump to 14.5% this year, up from 5% last year and improve to 15.4% next year. Return on Equity should be 8% this year, up from 3.9% last year. Fidelity Management, the big mutual fund, owns 15.1% of the stock; Paradigm Capital Management has 8.2%. Officers and directors have 11.6%.

As Benjamin was advised by Mr. Robinson: just one word, plastics. It seems Moldflow heard the advice and took it.

MFLO 1-yr chart

Disclosure: none