Comments on: Boring Companies Part 2

By: Daniel M. Ryan

Daniel M. Ryan — Wed, 09 Sep 2009 21:16:00 +0000

@value investor: You’re right about it not being a value stock. Soem of its ratios push it out of the value zone.

@JB: Yes, it’s had a bit of a run-up thanks in part to a slew of buy recommendations. It might go back below 50.

By: JB

JB — Tue, 08 Sep 2009 21:26:44 +0000

I get what you are saying. CMP has unique assets that cannot be replicated. Their salt seems are much thicker than any competitors so they can basically obtain more salt per blast, if you will. So they have lower unit costs. All I am saying is that I think it’s one of this stocks that is kind of a boring story…nothing reallly exciting to hang your hat on. That said, its a regional business, highly defensive….all in all, it’s a pretty cool, if not compelling stock.

I know more about potash than I do salt. Have visted POT’s lanigan mine. Listened to CFO tell me that prices couldn’t/wouldn’t crack and when I tried to tell him otherwise, he just kind of tuned me out. Nevertheless, I think their SOP is extremely interesting and I like the stock because they are reducing their dependence on generic potash and shifting their production to be solar pond based…which lowers costs tremendously and they will no longer need to purchase MOP from Mosaic.

Not entirely sure if CMP prices out though. Would like to see it below 50. Feels rich at 57.

By: value investor

value investor — Tue, 08 Sep 2009 20:41:14 +0000

An interesting company, I haven’t done my research on them the one concern I have over that EPS is their association with potash. Potash was a flash in the pan explosion last year and has now fizzled right out. Unless you are fairly confident that there will be a resurgence Compass has a few concerns. Just passing my eyes over there numbers their quick ratio and current ratio seem a touch off where I would like to see them. I would look hard at the balance sheet and see if they are spending like potash will have another great season or playing it safe and calling last year a flash in the pan.

By: Daniel M. Ryan

Daniel M. Ryan — Sun, 06 Sep 2009 18:17:36 +0000

What would you say about a company whose seven-year EPS growth was about 50%? Granted that a 50% rate is unsustainable, which is the main reason why I labeled it “speculative,” but EPS growth rate is the reason why I labeled it “growth.” Revenue growth in the same period is 12.5%. If Compass has managed to squeeze out that kind of growth in “mature slow growth end markets,” then they either are or soon will be the dominant producer in the market.

From its 10K: “We are among the lowest-cost salt producers in our markets because our salt deposits are high-grade quality and among the most extensive in the world, and because we use effective mining techniques and efficient production processes.” That constitutes a moat of a sort, if not an inherently fast-growing one.

The company also acknowledges “The salt industry is characterized by modest growth and steady price increases across various grades.” If you’re saying that the salt market is going to limit them in the future, I understand. That must be one of the reasons why its P/E is so low: a lowest-quintile 10.19. Its yield is only 2.49%, but its dividend has been increased once per each year it’s been in existence. (There was a post-IPO increase that made for two in a year, but that extra increase was unique.) The payout ratio, as of the end of 2008, is 27.9%.

Note: both growth figures are estimated using logarathmic regression. They’re estimated yearly rates.

By: JB

JB — Mon, 24 Aug 2009 19:32:00 +0000

Please tell me how a commodity producer or rock salt is a growth company? CMP sells into mature, slow growth end markets. Volumes will vary with weather conditions, and yes, salt prices have been on the rise – but this has been more of a function of capacity constraints and not incremental structural demand. If you buy this company…you buy it for the mix shift in their SOP production…not as a growth company.

By: Daniel M. Ryan

Daniel M. Ryan — Thu, 30 Jul 2009 06:04:59 +0000

If you’re interested, I found a boring company lurking in the lowest quintile P/E part of the stock universe. It’s called Compass Minerals [CMP], and it mines rock salt and sulfate of potash – two boring product lines.

Unfortunately, it’s not been a company all that long and its growth so far is a little too high to be trusted. Also, it may have expanded its inventory imprudently as of the last quarter. Compass is a speculative growth stock, a real oddity in the low P/E collection.

But its gross margins are high and its current P/E is low. Rock salt mines are hard to find nowadays.