Tuesday, November 20, 2007

Catching The Falling Knife That Is Ceradyne

Ceradyne (crdn) has been in free fall since reporting earnings on October 30, 2007. It has fell from it's peak of $84.41 and is trading today at only $42.42! Wall street was not impressed when Ceradyne guided to the low end of guidance and has been punishing this stock ever since. This company is trading at only a 7.99 P/E ratio which is basically saying that this company can't continue to grow it's bottom line.
Let me give you some basic information about Ceradyne for all of you who are not familiar with this company. It is a small company valued at just over a billion in market cap and only 27 millions shares of float out there. They are a fully integrated developer and manufacturer of advanced technical ceramic products and components for defense, industrial, automotive/diesel, electronic and medical markets. The light weigh ceramic body armor has been one of the main drivers of it's growth over the past few years and with the war in the middle east continuing with no end in site, I think this will continue to fuel it's growth, but that is not the only reason why I like this stock.

Ceradyne has two major proposals that it has turned into the federal government for review. The first and most important in my eyes is the BULL combat vehicle. Ceradyne has been working with OshKosh Trucks to develop this vehicle that can withstand the roadside bombs that have been causing so many casualties in the ongoing conflicts in The Middle East. The BULL has already passed limited testing by the military and is currently in the advanced stages of testing. Ceradyne expects some sort of a response by the end of this year or early next year. Along with this possible contract they have also submitted a body armor contract for their XSAPI body armor, this too is under review by the government.

Since Ceradyne is not completely sure if it will land these two contracts they have issued a very broad range of guidance for the next year and this spooked investors even more who went running for the exits. Yet another growth opportunity is it's business in China. They have constructed a factory there that will produce high purity ceramic crucibles which will be used in the manufacturing of silicon solar cells. They have also made two recent acquisitions which could help produce some major revenue streams in the future. EP Boron and Minco are both solid well establish companies that could further help Ceradyne's bottom line. So basically, as the saying goes you should never try to catch a falling knife, but I can tell you there is nothing wrong with just picking it up off the floor... This stock pick is certainly very risky, but I think the long term prospects of this company could really make for some huge gains in the future. Plus Ceradyne just announced today that they will be hosting a teleconference on November 27, 2007... could this be where they announce the results of The BULL testing? Either way we should see some major price action on this stock that day...

No comments:

Post a Comment