We all know the first quarter of 2012 opened with exceptional gains. Through March, the S&P was up nearly 12%, and the DJIA was up nearly 6%. Starting in mid-April to early May, the Euro crisis heated up, and markets began to see the gains of the first quarter start to shed away. One company which was immediately impacted by this drop off in investment levels in securities was U.S. Silica Holdings. SLCA is an industry leader in producing industrial minerals, and has existed in such a capacity for over a century. With a heavy R&D department, U.S. Silica has been able to continually innovate their means of production, and stay ahead of their competition. However, after deciding to go public in late 2011, their IPO hit the NYSE on February 1st 2012 at a PPS of $17.00. Unfortunately for Silica, their company entered the equity market just as the first quarter gains slowed.
Through the first two months of trading, SLCA's PPS grew by over 30%, up to $22.14 per share. However, from April on, these strong gains were eliminated. As the S&P fell by 6.4% since the start of April, SLCA has seen their price drop down to $11.75 per share. Due to the poor timing of the IPO, SLCA has now become an extremely undervalued stock. According to MarketWatch, 4/4 analysts have placed a buy rating on the stock, and have set an average price target of $26.25 per share. While expecting a company's stock price to increase by well over 100% is a lofty goal, studying the economic environment which this security entered as well as their market presence and financial performance, yields a belief and trust that these projections are entirely plausible.
Sales growth in 2010 rose by nearly 28% from 2009 levels, and in 2011, sales continued to grow by 20.67% from 2010. While sales growth has been increasing, growth in expenses has been decreasing. In 2010, expense growth was at 81.71% from the prior year, but in 2011, this growth slowed to only 50.48% growth from the previous year. Given the fact that sales growth is rising while expense growth is decreasing, this one fact immediately provides SLCU with a positive financial situation.
In addition to sales and expense growth, net income also has extremely positive indications. In 2010, net income grew from 5.54M to 11.39M, a growth of 105.67%. In 2011, net income rose from 11.39M to 30.25M, which gives them a growth of 165.56%. Additionally, EPS are up from 0.22 in 2010 to 0.61 in 2011, a 183.45% growth. Although this massive amount of exponential growth may not be completely sustainable, it can be expected that a company with over 100 year history will continue its market dominance going forward. This is not a new and speculative company, and is instead a heavily established and successful business. I feel that they had the unfortunate timing of entering the market just as the economy's gains slowed, and because of that, their stock price has suffered.
Given their market presence, financial growth, long standing history of business operations, and un-timely entrance into the equity market, I find it implausible to believe that this company has anywhere to go but up. I expect to see strong gains from U.S. Silica in the next one to two quarters, and am excited to see what happens which this stock moving forward.
Disclosure: I am long SLCA.