Finding astock with the potential to double is a tall order.
The company needs to have a solidbusiness model , promising
growth prospects and strong fundamentals. Companies like
Rite Aid (
have strong macroeconomic fundamentals and can boast stockgains
of more than 100% andearnings growth of 30% or more thisyear
But thesestocks have made their move already. How do we find
the next breakout stock? One way is to look for companies with a
similar combination of solid fundamentals and strong earnings
Future Fuel (
, a manufacturer of biofuel and premium chemicals that's primed
to take advantage of the developing alternative energymarket , is
one such company.
FutureFuel has enjoyed tremendous earnings growth: 26% over
the past five years and 110% growth inearnings per share (EPS)
for the same quarter versus last year. In addition, the company
beat expectations by 78% in this year's first quarter and 55% in
the second, which certainly qualifies as solid growth. It has
enoughcash on hand to meetcurrent liabilities and pay adividend
FutureFuel's business model also looks solid. The company has
two divisions: biofuels, which creates cellulosic ethanol that
primarily serves the biodiesel market, and chemicals, which makes
performance and custom chemicals for third-party clients.
FutureFuel's annual biodiesel capacity of 59 million gallons
represents a 70% increase since 2011, and the company has
postedprofit margins of more than 15% for the past three years --
including an 80% increase in gross profits, to $49 million, in
the first half of this year from the same period last year.
The current social and political climate has been a windfall
for alternative energy. The Environmental Protection Agency has
mandated that a higher cellulosic ethanol blend be used in
gasoline mixes. Although Big Oil has had some success in fighting
and influencing the new standard, it seems inevitable that more
biofuelwill be in increasing demand for the foreseeable
Renewable Energy Group (Nasdaq: REGI)
Archer Daniels Midland (
are poised toprofit from the samemacroeconomic factors as
FutureFuel but haven't had the same tremendous growth. FutureFuel
also offers a higher dividend than either Archer Daniels, which
pays 2%, or Renewable Energy, which doesn't pay one at all.
FutureFuel carries nolong-term debt , giving it an appealing
long-termdebt-to-equity ratio of zero. The cash ratio (cash and
equivalents divided by current liabilities), the most stringent
of theliquidity ratios, comes out to 3.9, a staggering figure
that tells us the company has enough cash and
short-terminvestments to pay its current liabilities in full if
Despite an upwardEPS revision in the past 30 days from $1.10
to $1.34 -- an increase of 21.8% -- FF is only up 5.8%. This
price disparity suggests that the full potential in FutureFuel
has not been recognized byWall Street , keeping the stock at a
discounted value. Momentum in the stock should keep the uptrend
going as the 20-daymoving average continues to widen the gap from
the 50-day average.
Risks to Consider:
The biofuel industry is reliant on the continuation of the
federal RFS2 mandate, which, while recently renewed, is still
subject to political changes. In addition, Future Fuel's small
operations are highlydependent upontax credits , the loss of
which could cause a discontinuation of biodiesel operations.
Action to Take -->
Based on FutureFuel's earnings history and growth expectations,
thefair value of the stock should be between $23 and $34, again
of up to 103%.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.