Published Tue, 30 Jun 2015 08:29:03 -0400 on Seeking Alpha
In the current frothy market, it's unusual to find a company with strong business momentum trading at 7x EPS, producing a 14% free cash flow yield. Yet, such is the case with Magnetek (Nasdaq: MAG), a company whose stock price appears to be experiencing a complete dislocation between price and fundamentals. We wrote about Magnetek in a Top Idea last November, and we're confident that we're not missing anything - in fact our conviction is higher. While shares move up 35% from our original write-up, on the heels of strong 4Q results, they are now down 23% year-to-date, and 6% from when we first suggested the stock. We believe the recent steep share price decline represents a compelling buying opportunity, and we believe investors will be rewarded by at least 50% upside over the next 6-12 months - approximately 12x EPS (ex-cash). In our view, Magnetek's sell-off is largely a function of being a micro-cap stock. Much like Digirad (Nasdaq: DRAD), which we wrote about last week in a Top Idea, we think shares have been pushed lower by one or two large sellers. Price appears to be completely detached from excellent fundamentals, with shares massively underperforming indices year to date. Magnetek YTD price chart Source: Morningstar.com Company Background Magnetek was founded in 1984 and has become a leading supplier of DC controls, electric motors and motion control systems for the materials handling (primarily cranes and hoists - 72% of 2014 revenues), elevator (22%), and... Read more
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