KMG Chemicals Is Still Worth A Look

Sep. 05, 2017 5:08 AM ETKMG Chemicals, Inc. (KMG)1 Comment
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WG Investment Research


  • KMG shares have pulled back from the recent highs but the stock is still outperforming the S&P 500 so far in 2017.
  • The company operates in several industries that are projected to experience strong growth in the years ahead, and the recent acquisition (Flowchem) is also expected to be accretive to earnings.
  • KMG is a long-term buy at today's price.

KMG Chemicals' (NYSE:KMG) stock price has pulled back from the recent highs of ~$60 per shares but the stock is still outperforming the broader market by 15 percentage points.

(Source: Nasdaq)

In late May 2017, I published an article that described KMG Chemicals as a company that was worth a look under $50 per share. Since that article was posted, KMG closed on its Flowchem acquisition and reported Q3 2017 financial results that beat the top- and bottom-line analyst estimates.

Today, I believe that investors with a long-term perspective should consider adding KMG shares on any broader market pullbacks because, in my opinion, there is a lot to like about this company as we head towards 2018.


What Have You Done For Me Lately?

On June 9, 2017, KMG reported Q3 2017 adjusted EPS of $0.53 (vs estimate of $0.47) on revenues of $81.6MM (vs estimate of $79.8MM). For the nine months ended April 30, 2017, the company reported revenue and net income growth of ~7% and ~23%, respectively. (Source: Q3 2017 10-Q)

KMG has benefited from its cost cutting initiatives and the integration of past acquisitions, so the company has been able to report strong earnings growth over the past few quarters. For Q3 2017, KMG reported adjusted EBITDA of $13.9MM, which was an ~24% increase from the same period in the prior year.

Q3 2017 marked the company's 13th consecutive quarter of double-digit YoY increases in adjusted EBITDA.

(Source: August 2017 Investor Presentation)

Looking forward, management is still confident that they are able to continue the impressive streak of executing on the company's overall growth strategy and they now expect for KMG's full-year EBITDA to hit the upper end of their guidance (ex Flowchem contribution).

Looking Out, The Trends Look Positive

The Flowchem acquisition will create a

This article was written by

WG Investment Research profile picture
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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