KMG Chemical: An Unknown Specialty Chemical Company, But Not For Long

May 30, 2017 11:01 AM ETKMG Chemicals, Inc. (KMG)1 Comment
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WG Investment Research


  • This small specialty chemical company is worth a look.
  • The latest acquisition is a game changer for KMG, if approved.
  • KMG Chemical is a great long-term buy, but I would wait for a pullback before starting a position.

KMG Chemical (NYSE:KMG) is a Texas based company that manufactures, formulates, and distributes specialty chemicals products across the globe. The company's growth strategy has been to acquire mature businesses in markets that still have promising business prospects but that are largely ignored by larger chemical companies. It is important to note that KMG's management team has a proven track record of acquiring and effectively integrating small specialty chemical companies since 1985 (see here for more detail on the company's history of acquisitions).

KMG has flown under the radar for many years, mainly due to the company's small market cap (~$670MM as of May 14, 2017), but, in my opinion, this company will soon catch the attention of many analysts in the financial community, so now may be the best time to start a position. I purchased my first KMG shares for the R.I.P. portfolio in late 2016 when the company's stock was trading below $40, but I failed to build a sizable position before the stock price shot up by over 70% in short order.

(Source: Nasdaq)

KMG's stock has greatly outperformed the broader market over the last year, but I believe that the company's shares are still worthy of your investment dollars, even at $50/share.

A Proven Track Record

This company has made several transformative transactions over the last five years that have greatly improved its business prospects, and the proof has shown up in the numbers.

(Source: 2016 10-K)

KMG disposed of several non-core assets - the most notable example being the Creosote Distribution Business in 2015 - and the management team has spent a lot of time and effort (and resources) in 2016 on restructuring and realigning its operations. So, the YoY decline in the net sales figure does not tell the whole story. On the other hand, KMG's impressive growth in income per share (52% YoY) and net cash

This article was written by

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Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long KMG. 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.

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