Grilling for Dollars: Blue Rhino

04/25/2003 12:00 am EST

Focus:

Jamie Dlugosch

Editor, The Rational Investor

Many investors are concerned about a housing bubble and hesitant to buy housing stocks. Indeed, there are valid arguments on both sides of the issue. Regardless, many homes have already been bought, and an outdoor grill is a likely "future" purchase. James Dlugosch, editor of The Rational Investor suggests a bar-b-que maker, Blue Rhino. Here’s his overview of this intriguing company.

"Blue Rhino (RINO NASDAQ) is another example of paying a small premium for future growth. Riding the coattails of the housing boom, RINO is a leading provider of refillable propane tanks used for gas grills. With more grills and in-home dinners, the future for RINO is indeed bright. Although RINO is trading for 15 times current earnings, the company is expected to earn $.97 in 2003. That gives RINO a ten multiple, more than reasonable for investment purposes. In fact, the company saw its shares trade for more than $18 per share earlier in the year having dropped sharply as a result of a reduced forecast. Use this opportunity to buy shares in RINO. While the company now expects to earn $.12 in the April quarter, expectations for the year remain at $.97.

"With the return of warm weather, much of the company’s earnings are generated during the summer grilling season. In fact, on my first run to Home Depot to replace my propane tank, supplies had already been sold-out. The much anticipated slow down in housing may be holding shares back, but I don’t see a slow-down in grilling. More people are dining at home as the economy softens, which should increase usage of propane tanks. While gross margins in the propane industry are razor thin, RINO’s brand and volume strategy make for a powerful combination. RINO has contracts with Home Depot, Lowes, Wal-Mart, and Circle K, which bode well for the company."

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