Market Commentary: 1 Marine Stock On Sale

Buying a boat manufacturer ranks right up there as one of the most treacherous investments when interest rates are elevated, at least on the surface.

But then there’s Marine Products Corporation that trades with a price-to-earnings ratio of just 7x. Not only is the PE ratio attractive but the earnings have been growing steadily quarter over quarter and operating income looks very attractive for the past three years too.

So, is it time to buy this boat maker?

Key Points

• Marine Products revenues, earnings, cash and debt levels all look very attractive.
• Its price-to-earnings ratio is rock bottom while other key financial metrics are sky high, all of which bode well.
• On a valuation basis, the stock appears to have significant upside potential at this time.

Time to Buy This Boat Maker?

A customer who wants to buy a boat is naturally going to fall into a higher wealth bracket, but that doesn’t mean all boat purchases are made in cash. Some percentage of prospective buyers who consider financing their boat purchases will be more reluctant to transact when interest rates elevated. That should curb demand to some extent, and yet in spite of that headwind, revenues at MPC have for the most part been growing.

Management has been doing a remarkable job in converting those sales into profits, producing an impressive 11% net income margin. And clearly they are looking out for shareholders also by keeping the payout ratio under 40% while still offering an extraordinary 5.3% dividend yield.

Other impressive metrics include the firms return on invested capital and return on equity, both of which are in the mid-30 percentage range.

But the number that stands out most stems from a discounted cash flow forecast analysis perspective is the price target, which sits at $17 per share, representing upside of over 60%. It’s for that reason Marine Products appears to be a buy at this time.

Stunning Company, Poor Stock

Marine Products has the hallmarks of being a great company and a hated stock. The share price has taken a tumble this year and remains under water. That’s understandable given that the natural inclination among analysts to view the firm’s customers as sledding uphill in the current financial environment and less willing to make a big purchase, like a boat.

But under the hull is a company that, in spite of the headwinds, has been able to grow revenues, earnings and sustain very high financial metrics that would be the envy of even the leading technology companies of the day.

If there were one reason to buy the firm, it would be management, who have managed not only to get revenues north of $100 million on a quarterly basis for about a year but also kept debt to a minimum, literally at $0, while cash on the books is above $60 million.

The bottom line is the sentiment is very bearish on Marine Products stock but the fundamentals appear attractive and when the tide does turn, and the technicals improve, seems to be a compelling buy.