Investment Alert: Buy Tecnoglass (TGLS) Under $45/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
Imagine stumbling upon a stock that had strong earnings, good cash flows, ranked well for profitability, had a good seasonal trend, and was undervalued. There are no holy grails in investing but that combination of factors might be a pretty compelling investment opportunity if you could find it, and we think we have.
Tecnoglass is an under-the-radar stock that designs and produces, as well as installs architectural systems for both residential and commercial instructions both in the USA and internationally.
As summer season kicks off, it’s no surprise that a spike in demand for its products is anticipated by investors who typically have poured into the stock in anticipation of the revenue pop at this time of year.
So is it a buy?
- Tecnoglass has been growing revenues steadily since 2014, with growth interrupted only during 2020 lockdowns.
- The company is undervalued, has strong cash flows, and a solid balance sheet.
- Seasonally, this is a strong time of the year for the share price.
Revenue Trend Is Spectacular
The first thing that jumped out at us is a truly spectacular year over year revenue trend over the past few years. Just look at these jaw-dropping numbers for a firm that specializes in low emissivity, laminated, silk-screened, curved and digital print glass products.
- Q1 2021: 27.8%
- Q2 2021: 48.6%
- Q3 2021: 27.4%
- Q4 2021: 26.7%
- Q1 2022: 20.6%
- Q2 2022: 38.9%
- Q3 2022: 53.3%
- Q4 2022: 60.2%
- Q1 2023: 50.6%
All that revenue growth is translating into growing operating income figures too. In Q1 2021, operating income was reported at $25.4 million. Fast forward two years, and the figure has jumped to $73.7 million.
Management is doing a really good job building up the company’s cash pile too, which sat at $85.2 million in Q1 2021 and most recently had grown to $128.5 million. Indeed, the largest free cash flow over the past twelve quarters came in Q1 2023. The obvious conclusion to draw is that this management team is executing well, and so the question arises: is Tecnoglass a buy?
Is Tecnoglass a Buy?
We ran a 10-year discounted cash flow forecast analysis to compute whether Tecnlogass had potential to rise further, and arrived at a fair value estimate of $55.41 per share. That’s pretty close to the analysts’ consensus figure of $53.40 per share; 5 analysts are covering the stock and they are all largely in agreement that intrinsic value sits close by to that mark.
Interestingly, though not surprisingly, Tecnoglass also has a pretty strong seasonal trend in the May to June period. Between May 11 and June 11, it historically has risen by an average 10.7%. But what we find most compelling is the year-over-year growth in the top line in each and every quarter going back all the way to 2020. Apart from the “lockdown era” the company grew every single quarter, every single year all the way back to 2014. Now that’s a rare and highly impressive track record.
For a long-term hold, there’s lots to like about Tecnoglass: valuation, cash flows, balance sheet strength, growing revenues and profits. And to top it all off, the share price has been slowly and steadily rising, so the chart is simply pristine too.