Marine Products Corporation (NYSE:MPX) kept cropping up on our radar when scouting for interesting value stocks.
Down 8.9% for the year, this designer, manufacturer and distributor of fiberglass powerboats is understandably not in vogue at a time when interest rates are up and the cost of buying a boat, at least if financed, is as high as it’s been in a couple of decades.
Yet with a 5.3% dividend yield, no debt, and a 7-year revenue CAGR of 9.1%, it seems this Atlanta-based boat firm has more to it than meets the eye.
Marine Products May Get Musk’s Seal of Approval
Elon Musk has famously said that the problem with a lot of big companies is they are run by too many MBAs and management pays too little attention to product innovation and improvement.
That doesn’t seem to be the case at Marine Products, though, where the firm’s innovative hull design, particularly in its Robalo line of boats, stands out in the boating industry. It’s widely regarded as both aesthetically pleasing and also technically advanced, offering improved hydrodynamics to provide better fuel efficiency.
Although it’s fair to say boat owners are unlikely to be the most price sensitive buyers of goods, they appreciate saving money and the efficiency factor emanating from the improved design reduces the total cost of ownership, helping them keep more money in their pockets.
It’s also viewed as a more stable design, making Marine Products boats more suitable for a wider variety of water conditions. Whether a buyer is a casual boater or a fishing enthusiast, MPC caters to their preferences, and in turn has a wider audience to which it can sell.
As a result of its solid designs and reputable quality, Marine Products has won over customers and earned strong brand loyalty that is reflected in repeat purchases and high satisfaction rates. It also leads to a stable buyer base that is likely to remain in place over the long-term, thereby offering more predictable revenues for the foreseeable future.
1 Reason for Bulls To Be Enthusiastic
As both a designer and manufacturer of sportboats and sport fishing boat markets worldwide, Marine Products relies on and has forged strong dealer relationships in order to ensure its brand visibility is high and sales are steady.
This well-managed dealer network includes training and marketing support, as well as incentive programs to influence dealer performance and loyalty. They are key to helping the firm expand its market reach and sustain market share.
To date, those efforts have paid off in spades. Look no further than the top line to see evidence of how the combination of a great product and excellent distribution has translated to impressive sales.
Revenues in four of the past five quarters have eclipsed $100 million. And even better, operating income has been in the black for each of the past twelve quarters.
Some of that financial success can be attributed to the firm’s customer base which tends to skew older and wealthier, and hence is a bit more insulated from the traditional economic swings. In short, a person with a high enough wealth level to own a boat may feel the pinch of higher interest payments but, overall, has enough assets and liquid reserves to withstand Federal Reserve rate hikes.
Is Marine Products Dividend Worth Buying?
For income-seekers, the dividend paid by MPC is really eye-catching sitting at 5.3% and with a payout ratio of 39.9%. The relatively low payout is testament to the sustainability of the dividend. So, even though the dividend is generous, it’s not particularly in any jeopardy it would seem.
That argument is supported by a look at the balance sheet, which features no long-term debt whatsoever, and $60.7 million in cash.
Across the board, it’s clear that management is doing something right, though it doesn’t yet appear to have been picked up by Wall Street or big money. An example of where it shines is in its return on invested capital, which sits at an astonishing 35.9%. That eye-popping figure is only eclipsed by the return on equity of 36.1%. Both of those numbers soar above market averages.
And yet the firm is trading with a P/E ratio of just 7.6x and has an 11.4% net income margin. So is it a good deal at this time?
Is Marine Products Stock Undervalued?
Marine Products stock is undervalued by 6.3% according to the single analyst covering the stock, who has fair value at $11.14 per share.
When a discounted cash flow forecast analysis is performed, the picture becomes more appealing with 63% upside to fair value of $17 per share.
Is It Time to Buy Marine Products?
Marine Products stock appears to be highly attractive across a number of key financial ratios and metrics. Not only does it have a sky high ROIC and ROE, but it also offers a very attractive dividend yield that rivals the bond market now. Notably, that dividend has increased in each of the past three years.
So too has it been profitable over the past three years and is forecast to continue that trend for the upcoming year. The company’s low PE ratio and estimated earnings growth rate appears to suggest it is on sale at this time. With a consistently rising earnings per share, Marine Products is clearly weathering economic headwinds as well as might be expected from any boat maker at this time.
For boating enthusiasts who are used to their passion being a liability in terms of maintenance, insurance and fuel costs, Marine Products offers a way to turn that interest into a potential asset for the long-term.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.