We initiated coverage of Acme United (ACU) in October 2020; since then, the stock has delivered nearly 40% in appreciation and dividends in just 16 months, notes Doug Gerlach, editor of SmallCap Informer.
We were impressed by its tools that support industrial and workplace safety as well as its products for home and school use by hobbyists and sports enthusiasts, both areas that we thought would benefit from, or at least not be thwarted by, the Covid pandemic.
Its safety solutions include component first aid kits that are of- ten required by industrial safety regulations and can be restocked using the company’s SafetyHub app. Orders for refills provide an ongoing revenue source, one that is growing considerably.
Spill Magic is the company’s line that serves facilities such as groceries, department stores, and factories, delivering the ubiquitous “wet floor” signs as well as wipes, brooms, dustpans, and moisture management products that are OSHA- and ANSI-compliant.
Its Westcott brand of scissors and cutting tools are well-known in the craft market and are making inroads into culinary and office markets. Westcott continues to innovate in this space with patented carbonitride-titanium and non-stick coatings for use in industrial settings, as well as safety tools with ceramic blades or antimicrobial plastics for schools and offices.
In the last decade, sales grew at an average annualized rate of 8.4% a year. The average EPS growth rate in the same period was 9.5%. Since 2017, EPS have grown 33.4% a year on average.
In the first quarter ended March 31, 2022, sales declined a slight 0.4% to $43.3 million, while EPS declined 57.7%. The company blamed supply chain issues for the fall-off of earnings.
We project future annual average growth of EPS to be around 10% a year, with another roughly 1.5% a year in dividends. The stock is currently selling a P/E ratio of 10.3, below our revised average P/E ratio of 11.6.
We think the stock can sell for a P/E ratio of 14.9, which would take the price as high as $75. On the downside, a P/E ratio of 8.2 times FY 2021 EPS equals a low price of $28. The current price of $32.49 represents a 10.2-to-1 upside/downside ratio, with a potential 19.8% annual total return from the present price.
