Today’s new recommendation comes from Thomas Byrne, who is initiating coverage of a small but profitable biofuel company.
“We are initiating coverage on FutureFuel Corp. (FF, $14) as a Top Recommendation. Insiders own 55% of the company and they are still buying. Insiders have purchased over 450,000 shares in the last two months, including 170,000 shares by the new CEO. This fact alone is usually worth buying the stock. But we have other good reasons to back up our recommendation.
“FutureFuel has $115 million in cash. It also has another $82 million in Marketable Securities, for a total of $197 million. That represents 36% of the company’s market cap. Backing out the cash, FF is trading for just 9.1 times our 2013 earnings estimate for $0.92 per share. The Price/Book ratio is 1.8 times and the Price/Sales ratio is 1.4 times, both very cheap. Over the last nine months, FutureFuel has generated $62 million in Operating Cash Flow, or three times higher than Net Income, which is a phenomenal metric. Although these are tantalizing valuations, they mean nothing if the company does not have a good business model.
“FutureFuel sells biofuels and biobased specialty chemical products. Obviously, these are alternatives to traditional fossil-based fuels. We have researched hundreds of small biofuel companies over the last 25 years. Most of them are a sham. Others are pipe dreams. None of them have been profitable. We finally found one that broke the mold. FutureFuel has a real technology that is being used by hundreds of customers, and the company is profitable. FutureFuel also recently raised its quarterly dividend by 10% to $0.11 per share, giving the stock a yield of 3.4%.
“Despite being enormously profitable and cash flow positive, the CEO and CFO have not taken a salary in three years. Their primary compensation has been stock options and small bonuses. For example, CEO Lee Mikles was given 42,000 stock options in 2011 and a small bonus of $25,000. How often do you see that level of dedication?
“Our fair value on the stock is $19, or 50% upside from the current stock price.”
- Thomas Byrne, Byrne Investment Research, February 6, 2013