KMG Chemicals: An Unknown Outperformer That Is Worth A Look

Mar. 11, 2018 1:56 AM ETKMG Chemicals, Inc. (KMG)2 Comments
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WG Investment Research


  • KMG Chemicals' stock has outperformed the broader market over the last 1-, 2- and 5-year time periods. However, this company is still not widely followed by the Street.
  • The company recently reported better-than-expected Q2 2018 financial results, and raised its full-year 2018 guidance.
  • KMG Chemicals is a long-term buy at today's price.

KMG Chemicals (NYSE:KMG) is a small-cap speciality chemicals manufacturer that not many people have heard of, but the company's stock has significantly outperformed the broader market over the last year.



KMG data by YCharts

As described in "KMG: An Unknown Specialty Chemical Company, But Not For Long", I believe that KMG Chemicals has extremely bullish long-term business prospects and, more importantly, the company's backdrop continues to improve. More recently, KMG Chemicals reported blow-out Q2 2018 financial results and raised its full-year 2018 guidance. As such, I believe that this unknown speciality chemicals company is worthy of investment dollars, if your time horizon is longer than 12-18 months.

The Q2 2018 Results, A Lot To Like Here

On March 8, 2018, KMG Chemicals reported Q2 2018 results that beat the top- and bottom-line estimates. For the quarter, the company reported adjusted EPS of $1.04 ($0.32 beat) on revenues of $113.8M ($1.28M beat). Additionally, the company's Q2 2018 results were significantly better than what was reported in the same period of the prior year.

Two things to note: [1] the company recorded a benefit in the amount of $11M as a result of the US tax reform bill (i.e., a one-time benefit), and [2] the company made a material acquisition (Flowchem), in addition to several other smaller acquisitions, in 2017 that positively impacted the most recent operating results. As such, the period-over-period comparison may seem a little too good to be true but, at the end of the day, this management team had KMG Chemicals in a great position heading into fiscal 2018. The results prove it.

Both of the company's operating divisions reported impressive results, but Electronic Chemicals was the real standout for the quarter.

As shown, the Performance Materials division was no slouch though. Again, Performance Material's net sales and operating income


KMG PE Ratio (Forward) data by YCharts

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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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