Think Gold and Silver Are Strong? Check Out this Material
Never mind gold and silver, strong growth for carbon fiber is making this composite an area for investors looking for a niche play, based on my stock analysis.
Carbon fiber is a compound used for applications that demand a high strength-to-weight ratio and rigidity. The material was previously found only in high-cost applications, but my stock analysis shows that prices have been declining over the past years, with carbon fiber being increasingly found in numerous consumer products, including laptops, tripods, fishing rods, tent poles, racquet frames, bicycles, sporting equipment, golf clubs, and motorcycles.
The commercial applications of carbon fiber include aerospace, automotive, offshore drilling, infrastructure, marine, energy storage, and wind turbines.
The global carbon fiber market is expected to see an estimated annual growth of 17% over the next five years to around 118,600 tonnes and a market value of about $7.3 billion by 2017, according to a report by Smithers Apex. (Source: “The Future of Carbon Fiber to 2017,” Smithers Apex, http://www.gmc2.org/images/pressreleases_pdfs/Future_of_Carbon_fibre_2017.pdf.) From 2012 to 2020, the annual growth for carbon fiber–reinforced plastics is estimated at 16%. These metrics make carbon fiber plays an intriguing opportunity, according to my stock analysis.
A potential play in the carbon fiber market for aggressive investors is small-cap, special situations play Zoltek Companies, Inc. (NASDAQ/ZOLT), which appears attractive given it is well down from its 52-week high of $15.01. My stock analysis is that Zoltek represents an above-average risk-to-reward opportunity in the equities market. Note that this is not a buy recommendation, but simply an idea.
Technical analysis shows the stock is a sideways channel just below its 50- and 200-day moving averages (MAs), but the stock may be set for a breakout towards $10.00 and $13.00, based on my stock analysis.
Chart courtesy of www.StockCharts.com
Zoltek, around since 1975, is the largest seller of carbon fiber for the low-cost end for commercial use, according to the company. The company’s carbon fiber is sold under the “Panex” brand. Zoltek also develops a stabilized and oxidized acrylic fiber that’s used in flame and heat-resistant applications sold under the “Pyron” brand. In addition, Zoltek Automotive was formed in April 2010 to develop carbon fiber for automotive applications.
Global markets have been developed in Asia including China, India, Korea, and South America (focusing on Brazil), which makes the stock a global play, based on my stock analysis.
Zoltek reported higher fiscal sales from 2003 to 2007 and in 2011. Sales increased from $41.8 million in fiscal 2002 to $152 million in fiscal 2011.
A plus is that the sales picture is expected to improve. In fiscal 2012, sales are estimated to rise 26.4% to an estimated $192 million.
The earnings side is another matter, with Zoltek only turning a profit in fiscal 2008. My stock analysis is that the positive is that the company’s loss decreased in fiscal 2011. The three analysts following the company estimate Zoltek will turn a profit of $0.71 per diluted share in fiscal 2012, ending in September.
There was a large short position of 22.7% of the float as of July 31, or 6.3 million shares. A stock market rally could drive up short covering, based on my stock analysis.
In May, an insider made three purchases accounting for about 45,000 shares at prices ranging from $7.73 to $8.01. My stock analysis is that this is a bullish insider signal.
If the use of carbon fiber in industrial applications grows as expected, Zoltek could see a corresponding rise in its share price.