Hammond Power Solutions: Is It a Value Play?

We have discussed on several occasions the investment opportunities related to power regulation and renewable energy. I have also recently written about the value approach to investing.

I came across a stock today that I believed fell into both categories: power regulation (transformers) and value. The stock is Hammond Power Solutions (HMDPF.PK), a firm that makes transformers for a number of applications, including wind turbines.

While revenue and earnings have been ramping up quite nicely over the past four years, the stock price has been trending mostly laterally (albeit in a volatile manner) over the past 12 months, with the result that Hammond currently trades at about 9.7x 2007 earnings. A PE of below 10 almost always draws my attention, especially for a company with exposure to one of my favorite areas of alt energy.

Interestingly enough, one of my former classmates who runs his own value investing blog had come across the same stock earlier. Here is his take on Hammond Power Solutions. I thought it was an interesting analysis and provides insight into how the balance sheet can be used to spot a value stock. Enjoy!

In Hammond's case, the question therefore is: Does the company have a unique competitive advantage that will lead investors to multiply its earnings beyond 10x in the future? If so, this could be a value play.

 

DISCLOSURE: The author does have not a position in Hammond.