My loss is your gain. Less than a month ago,
I told readers
about the potentially strong upturn in place for carbon fiber maker
Thanks to a just-released
are now up a heady 67% from where I recommended them. And that's in
just one month! I didn't add the stock to my
$100,000 Real-Money Portfolio
, awaiting a better entry point that never arrived. Hopefully, you
were able to get in the action and have been able to secure a tidy
Here's the odd part. This stock still has a lot more upside. After
myriad false starts, this company is finally getting its act
As I noted last month, Zoltek built a great deal of manufacturing
capacity a few years ago, only to find that demand wasn't as robust
as expected. As a result, those factories were heavily
under-utilized, and a real drag on gross and operating
This dynamic appears to have changed. For the second quarter in a
row, Zoltek saw a solid spike in sales. Last fall, the company
announced that fiscal fourth quarter (September 2011) sales rose
38% to $43 million. On Friday morning, Feb. 3, the company followed
up with a 43% year-over-year spike in sales to $47 million.
Analysts had been expecting about a nickel a share in profits.
Zoltek instead earned $0.28 a share. This works out roughly
to a $1 a share in
on a full-year basis. All of this led to massive one-day rally,
with the stock up 38% as of this writing.
It's worth noting Zoltek's
potential is still constrained. The company's factories are still
under-utilized, and if quarterly sales move up to the $55 million
to $60 million range, then margins would expand from better factory
utilization, meaning Zoltek's profits could grow even higher. The
company speaks of hitting $500 million in annual sales by the
middle of this decade. That's a foolhardy prediction. Assume
instead that sales max out at $300 million. At that level, Zoltek
could still likely earn around $2 a share.
How realistic is this scenario? Well, when you consider rivals
and SGL-Carbon (which recently changed its name to SGL Group) are
already operating at capacity, buyers of carbon fiber are turning
to Zoltek to meet their needs.
There's another reason to expect Zoltek's sales to spike higher.
Just this week (Jan. 30), U.S. regulators paved the way for further
development of offshore wind farms along the U.S. Mid-Atlantic
seaboard. All of those carbon turbines use carbon fiber. In fact,
Zoltek's biggest customer is Spain-based Vestas, which may play a
key role in that offshore wind power program.
Risks to Consider:
Make no mistake. This stock has scored quick gains, and
investors need to know that Zoltek periodically stumbles backwards.
Indeed, I wouldn't be surprised to see this stock hit by
profit-taking, perhaps back down to the $10 range. Then again,
maybe not. The company will hold a conference
on Monday (Feb. 6), and if management can make a convincing case
that quarterly results will be even better in coming periods, then
shares are unlikely to slip back.
Action to Take -->
As investors start to fixate on Zoltek's rising sales and firming
margins, this stock could really hit its stride. I'm talking about
$15 or even $20 (up from a recent $13). That's why if you own
shares now, you should resist the urge to book
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-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC does not
hold positions in any securities mentioned in this article.