Optical Cable Corporation (OCC) designs, manufactures, markets, and sells fiber optic, and copper data communications cabling and connectivity solutions primarily for the enterprise market. The company offers fiber optic cables for military field applications, copper datacom cables, including unshielded and shielded twisted pair for copper network installations. It also provides fiber optic connectivity products, cabinet mounts and rack mount enclosures, pre-terminated fiber optic enclosures, fiber optic connectors, splice trays, fiber optic jumpers, plug and play cassette modules, pre-terminated fiber optic cable assemblies, adapters, and accessories; and copper connectivity products.
Optical Cable Corporation is one of those companies that I would suggest, at current prices, be in long term portfolios. It has the dynamic characteristics of a small business, the savvy mind of a fortune 500 and a Warren Buffet value oriented approach towards shareholders.
One think I always like in any stock is if management can reduce the total amount outstanding shares over time. For those who don't know what that means, it means you are getting a bigger piece of the company at no extra cost to you, as an individual shareholder. As the chart below shows, the company has reduced total outstanding shares over time to the benefit of share holders.
OCC Shares Outstanding data by YCharts
I mean, how many companies do you know that have about 10% less shares outsanding over the decade?
The company recently announced another repurchase program. Although the company is not restricted to fulfill the total amount of shares in the announcement, based on past repurchases, I would say we can almost take them for granted:
OCC Stock Buybacks data by YCharts
As you can see from the chart bellow, revenue growth in quit strong and after tax earnings have rebounded spectacular over the past 2 years.
OCC Revenue data by YCharts
Third Quarter results were quite strong. As per the companies Q3 release:
Third Quarter 2012 Financial Results
OCC's consolidated net sales increased 17.2% to $22.0 million for the third quarter of fiscal 2012, compared to consolidated net sales of $18.8 million for the same period last year. The increase in net sales during the third quarter was attributable to increased sales of the Company's fiber optic cable products.
OCC's gross profit increased 35.0% to $8.8 million in the third quarter of fiscal 2012, compared to $6.5 million in the third quarter of fiscal year 2011. Gross profit margin, or gross profit as a percentage of net sales, increased to 39.9% in the third quarter of fiscal 2012 from 34.7% in the third quarter of fiscal year 2011.
OCC recorded net income attributable to the Company of $1.2 million, or $0.18 per basic and diluted share, for the third quarter of fiscal 2012, compared to $118,000, or $0.02 per basic and diluted share, for the third quarter of fiscal 2011.
Fiscal Year-to-Date 2012 Financial Results
OCC's consolidated net sales increased 14.4% to $61.4 million for the first nine months of fiscal 2012, compared to net sales of $53.7 million for the same period last year. The increase in net sales was attributable to increased sales of the Company's fiber optic cable products.
Gross profit increased 26.1% to $23.8 million in the first nine months of fiscal 2012, compared to $18.9 million in the first nine months of fiscal 2011. Gross profit margin increased to 38.8% in the first nine months of fiscal 2012 from 35.2% in the first nine months of fiscal 2011.
OCC recorded net income attributable to the Company of $2.3 million, or $0.36 per basic and diluted share, for the first nine months of fiscal year 2012, compared to $430,000, or $0.07 per basic and diluted share, for the same period in fiscal year 2011.
Indeed the company has reiterated that this trend will continue, as evidenced by the company's CEO statement (in their Q3 2012 results):
Mr. Wilkin added, "OCC has a solid sales order forward load, and we expect our sales strength will continue in our fourth fiscal quarter, despite economic weakness. We will continue to execute our strategy to grow OCC and to deliver enhanced shareholder value, and we look forward to a strong finish to our fiscal year."
One other point I want to raise is the excellent balance sheet the company has. At fist sight, I always look at the current ratio of a company. As you can see bellow, in the case of Optical Cable Corporation, it is more than satisfactory.
OCC Current Ratio data by YCharts
However, taking it one step further, I also look at current assets against total liabilities. In the case of Optical Cable Corporation, total liabilities are about 50% of total current assets, which means that the health of the company is excellent and the chance of the company needing money and diluting the share holders in the future is quit slim.
One issue with investors might be the long term chart. Simply put, this stock has been dead money for the better part of the decade. I have seen this before many times and chances are, that the stock was too rich in the past to go anywhere.
There are limits to how long investors wait until they trough in the towel. But that's a problem for those who have had this stock for the past 10 years, not for new potential shareholders.
Today this company is priced to perfection for long term buy and hold portfolios.
What we have here is a stock with a very strong balance sheet, a dividend paying stock, strong sales growth (and hopefully increased profits in the future) and above all, management that is committed to increasing shareholder value, by reducing the total outstanding shares. Simply put, it really does not get much better than this.