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Give cabinet maker American Woodmark Corp (AMWD) a double dose of espresso this morning. The stock is down about 20%, as of this writing, as a result of the announcement of tough past and upcoming quarters. We need to look a little closer at this stock before we start buying it aggressively, but here are some of the positive aspects of the company that we can see.

Leadership: American Wookmark Corp is the third largest domestic cabinet maker and the leading vendor of stock cabinets (Thompson, Davis & Co.).

Valuation:: Trailing PE is 12.15, forward PE is 8.61 (wow!--but those numbers are before today's news), EV/EBITDA is 5.54, price/operating cashflow is 8.02. The stock is volatile today so these numbers are changing by the moment, but this is the data as of this writing (Source: Yahoo!).

Below the Radar: Market cap around $400 million, 10 day average volume of 39,100 shares, unsexy business.

Balance Sheet: Cash of $26.5 million and debt of $30.2 million. Current ratio is 1.9 and debt/equity is 0.14. I haven’t read the footnotes but it looks clean from a distance.

Margin and Returns: Profit margin 4.1%, operating margin 6.8%, ROA 9.8%, ROE 15.8%. Nothing exciting here.

Yield: Only 0.4%, but how often do companies this size pay anything?

Insider Ownership: 42%. Fantastic.

Short Squeeze Potential: Short % of float 5.9%, short ratio (as of 10/11) 8.3 (Source: Yahoo!).

Long Term Sales and Profits: Look good to us, especially sales growth.

Year…..Sales…..Net Income (Source: MoneyCentral, millions of $)
04/05…..777.0…..35.6
04/04…..667.5…..31.7
04/03…..563.5…..32.7
04/02…..499.0…..32.2
04/01…..416.7…..19.0
04/00…..387.3…..14.5
04/99…..327.0…..17.5
04/98…..241.7…..13.0
04/97…..219.4…..10.5
04/96…..196.2…..3.8

Smart Owners: Muhlenkamp & Co. owned just under 4% of shares outstanding as of 6/30/05.

Watch Out:

During the last fiscal year, American Woodmark had two customers, The Home Depot and Lowe's Companies, Inc., which each accounted for more than 10% of sales. The loss of either would have a material adverse effect on the Company. (Source: 10K)

Reason for Today’s Pain: General fear about housing.

…second-quarter profit slid a worse-than-expected 46 percent from last year, hampered by modest sales growth and higher costs. The company also gave a cautious outlook for the third quarter and forecast earnings below analysts' current estimates, citing manufacturing inefficiencies and sluggish consumer sentiment.(Source: Associated Press)

Thesis: A leading company with a clean balance sheet, high insider ownership, solid 10 year results, and a cheap price is facing panic selling due to a tough quarter and upcoming struggles. (Doubt: Are we wrong? Is the share price rationally adjusting to the bad news?) If we hold long term, this company will eventually return to glory. The challenges that this company is facing are surmountable. Is this a chance to be greedy while others are fearful?

Next Step: Doing our homework to test our thesis.

Source: Panic Selling of American Woodmark Corp Might Be Opportunity (AMWD)