More on Ceradyne
Average Joe (found via SeekingAlpha) has a nice, well researched piece on Ceradyne (CRDN). We commented on Joe’s piece but wanted to include those comments here since we have been following the name.
(Joe does) a great job of explaining the company’s business and products. (We) would point out, though, that the concentration of sales to the military virtually ensures they will revert to something less than the prior 15% rate.
If 80% of the business is now military and stays flat, even if the remaining 20% grows at the historical 15% average the total growth could be just 3%. A 4% decline in military sales would wipe out 15% growth in the industrial businesses. And the simple fact is that once all of the soldiers have body armor, replacement kits will generate far lower sales than the initial equipment ramp-up. That is why the stock is at 15x - nobody really believes the growth rate will be 15%, let alone 27%.
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