Aspen Aerogels: Flying Under The Radar

| About: Aspen Aerogels, (ASPN)
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ASPN is an under the radar stock that trades slightly above tangible book value.

Solid management team with long tenure; recent insider buying a positive signal.

We believe demand for ASPN’s products has bottomed and the company is at an inflection point.

The bear market in Energy has bruised the bottom line of companies beyond energy producers. Yet, it has resulted in some compelling opportunities for value investors. We view Aspen Aerogels (NYSE:ASPN) as a prime example.

The company makes insulation materials that are used primarily in the energy industry with remaining sales tied to areas ranging from commercial construction to aerospace. Its Aerogel products are viewed as category leading due to their thermal efficiency and ability to reduce corrosion.

Because of its significant exposure to deep sea drillers, when the bottom fell out of oil, the company's valuations followed.

While ASPN has historically traded with energy prices, we believe the approach overlooks the diversity of its clients. A closer review shows although sales to exploration and production companies remain soft, its results in the refining and petrochemical segments - where it works with 44 of the top 45 companies worldwide - are more robust.

The strength of the Massachusetts-based company's technology led BASF to enter into a strategic partnership with it. Under terms of the deal, BASF inked a purchasing agreement with ASPN and agreed to provide it with a $20 million interest-free loan to be repaid in Aerogel product.

Trading slightly above tangible book value, with a strong balance sheet, the company is at an inflection point, in our view. Its earnings have been negative as work has been completed on its new plant in Georgia, but revenues have grown at a 27% CAGR since 2009. We expect 2016 may see a mild 4% decline in revenue due to continued pressure in oil, but we believe the weakness will be short lived.

We anticipate ASPN will turn the corner as it capitalizes on significant operating leverage. Its Rhode Island plant is running at capacity and the company expects to ramp up production at its Georgia facility in the coming 18 months. The latter could lead to expansion into untapped markets such as water filtration.

We believe demand for ASPN's products has bottomed, and with an uptick in sales, there is little risk to the company's income statement. Finally, we are impressed with the long-tenured management team in place and consider recent insider buying a positive development.

Disclosure: I am/we are long ASPN.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.