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small-cap

Hold On to This Small-Cap Building Products Stock – PATK

Oct 29, 2021 | Team Kalkine
Hold On to This Small-Cap Building Products Stock – PATK

Patrick Industries, Inc.

PATK Details

Patrick Industries, Inc. (NASDAQ: PATK) is a prominent producer of component solutions for the RV, marine, manufactured housing, and industrial industries, including single and multi-family housing, hospitality, institutional, and commercial applications. Manufacturing and distribution are the two parts of the firm, dependent on the type of product. As of October 28, 2021, PATK's market capitalization stood at USD 1.83 billion.

Latest News:

  • Acquisition of Tumacs: PATK announced on August 30, 2021, that it had completed its acquisition of Tumacs Covers (Tumacs), a significant maker of custom-designed boat covers, canvas frames, and bimini tops principally for marine OEMs and dealers. PATK believes the transaction will boost its profits per share immediately.
  • Declaration of Cash Dividend: The firm announced a quarterly cash dividend of USD 0.28 per share on August 12, 2021, which was paid on September 13, 2021, to shareholders of record on August 30, 2021.  It also stated that the amount of common stock that can be purchased under the current stock repurchase program over the next 24 months had been increased to USD 50.0 million, including the USD 14.4 million remaining under the prior authorization.

9MFY21 Results:

  • Massive Surge in Topline: Due to substantial, sustained success in its RV and marine leisure lifestyle segments, as well as the MH and industrial end markets, PATK's net sales increased by 70.98% to USD 2.93 billion during 9MFY21 (ended September 26, 2021), compared to USD 1.71 billion during 9MFY20 (ended September 27, 2020).
  • Boost in Bottomline: Its net income was USD 163.90 million during 9MFY21 vs. USD 59.24 million reported in 9MFY20.
  • Leveraged Balance Sheet: The company exited the quarter with a cash balance of USD 44.88 million and a total debt of USD 1.09 billion.

Key Risks:

  • Customer Concentration Risk: In FY20, two clients in the company's RV sector accounted for 39% of its total revenues. As a result, the loss of either of these consumers might negatively influence PATK's finances.
  • Product Concentration Risk: In FY20 and FY19, the RV industry accounted for 56% and 55% net sales, respectively. Any significant drop in RV unit shipments or a slowing of the industry's growth could harm the company's operations.

Outlook:

  • Industry Outlook: PATK announced on October 28, 2021, that it expects retail and wholesale demand patterns and predictions to lead to an extension of the RV, marine, and MH dealer inventory replenishment cycle, as well as the corresponding OEM production requirements far into FY22 and FY23.

Valuation Methodology: EV/EBITDA per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

PATK Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

PATK's share price has surged by 40.88% in the past twelve months and is currently trading at the mid-band of its 52-week range of USD 53.30 to USD 98.83. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 44.52. We have valued the stock using the EV/EBITDA based relative valuation methodology and arrived at a target price of USD 84.32.

Considering the company's robust track record, recent strategic acquisition, steady dividend yield, and associated risks, we recommend a "Hold" rating on the stock at the closing price of USD 80.13, up 3.59% as of October 28, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.