Recently I have witnessed several low float stocks that I have entered rapidly appreciate in price. LiveDeal Inc. (LIVE), which I picked in the low $3's on January 23, exploded this week to hit $15.57. It went from the $5's to $15's in 7-8 trading days. Several weeks ago, another low floater, Rosetta Genomics LTD. (ROSG), which I originally tweeted about my entry in the $2-$4 range, hit $23 in 7 trading days.
I have found the next low float stock that I think can rapidly appreciate and it has strong substance to make such a move, stronger substance than LIVE did at the time. Kewaunee Scientific Corp. (KEQU) is a Nasdaq stock with a float of 1.8mm shares, 2.6mm shares outstanding and a book value of $12.27 after this recent quarter. KEQU closed at $12.06 on Friday. It is trading $0.21 below book value, yet it has a major catalyst besides that.
KEQU has experienced a major turnaround in profitability due to the Company reaping the rewards from "cost savings initiatives commenced earlier in the year". It reported monster EPS of $0.49 per share this quarter vs $0.10 per share in the same quarter last year. KEQU has a record backlog and the CEO is optimistic (in the last earnings release) about this coming year. "The order backlog increased to a record $86.2 million at April 30, 2012, up from $65.7 million at April 30, 2011, with both domestic and international orders contributing to the growth."
The CEO continued discussing the future prospects for KEQU in the last earnings release.
"Looking forward to fiscal year 2013, I remain cautiously optimistic," Mr. Shumaker continued. "My optimism is based on a number of factors. On the domestic front, we enter the year with a strengthened and expanded dealer network, which we believe will result in increased sales and earnings. We are also realizing lower operating costs from our cost savings initiatives put in place over the past year. On the international front, we have also strengthened and expanded our dealer network, better positioning us to take advantage of the growing number of laboratory project opportunities in Asia and the Middle East. Furthermore, both domestic and international operations will benefit from our record order backlog."
KEQU has strong sales prospects with a record backlog. The strongest point here is that the company has successfully changed its cost structure impacting profitability. When I look at the company's sales I do not see seasonality in the quarters. Therefore, I feel comfortable in annualizing this quarter's EPS as the CEO said he is optimistic for the coming year because the company is realizing the benefits from cost cutting measures. That would put KEQU on an EPS run rate of $1.96 if you assume it will not have any sales growth. That assumption seems unlikely to me since the backlog is at a record high and the CEO said it will have increased sales and earnings. The industry the company is in has an average P/E of 16.8.
If you annualize the EPS this quarter due to the reasons above (even though that is conservatively assuming no sales growth contrary to the CEO's statements) and take it at the industry average P/E, that would result in a KEQU share price of $32.93. KEQU closed at $12.06 on Friday, $0.21 below its book value.
One other note, KEQU currently pays a $0.40 dividend.
Recipe For A Low Float Rocket
1) Low Float - 1.8mm
2) Great Current Earnings - $0.49 EPS this Quarter, Trades Below Book Value
3) Great Future Prospects - Record Backlog, Optimistic CEO Comments, Improved Cost Structure
4) Undervalued / Under followed Stock - Annualize Current Quarter EPS at the industry average P/E would give KEQU a value in the $30's.
I am long KEQU with an average near $11. Low float stocks can be volatile and are not for large positions in my opinion.