HB Fuller Co (FUL) Detailed Analysis

HB Fuller Co. (FUL)

Sector: Basic Materials

Industry: Specialty Chemicals

How well is the Company growing?

With every business we want to know if they are growing. Why would we put money into a business that is not growing? The best way to understand if a company is growing is to compare it to the industry as a whole. Since FUL is part of Specialty Chemicals, that is what we will compare it to. Over the last year, the industry as a whole grew in sales by (15.60%) FUL did not fair as well, (11.10%) But, they faired better on net income. Overall they income grew by (209.90%) while the industry grew at (178.30%). Even though sales were not as good, income grew a lot faster than the industry average over the last year

Our Conclusion- this company has grown well until recently! We give it a B

How valuable is the Stock?

How does one know how valuable a stock is? Cash is King! If this is the case, FUL has what it takes to blossom as an investment. When we think about value we have to think about the potential growth. How much potential? Something called the price to sales ratio gives us the best indicator of this. The more money a company has coming in through sales compared to how much working capital it has speaks volume of its health. The lower the price/sales ratio, the healthier it is. If we compare FUL to its industry, we find a mind-blowing possibility to sprout and grow. The industry comes in with a 3.19 ratio while FUL stands at 0.81. It screams; “I have what it takes to get bigger!” If we take seriously “Cash is King,” then the second most important thing we need to consider is how much money is flowing through this company as compared to its price. This is called the price to cash flow ratio. The closer the ratio gets to that magical “100” the less capability a company has. “100” means it can just pay its bills because the value of the company is equal to the amount of money coming in and no more. The industry stands at 11.10 while FUL shows off just over one half of that, coming in at 7.60. We have an abundance of upside potential compared to the industry as a whole. Since we compare companies to their industry to define their health there are two more ratios that we consider. Each ratio is defined by how low it is. The lower the better value the company has. The price to earnings ratio (P/E Ratio) and the price to book ratio also come in lower than the industry as a whole.

Our conclusion- this is still highly under valued! We give it an “A”

How profitable is the Company?

If a company has a good sales force and the money is flowing, that is a possible good sign for an investment. But alone, this is not good. What if a company brings in money but then spends it as fast as it brings it in? What if it costs them almost as much to make a sale as it does to sell? These are important things to think about and know if you are going to put your money into a company. To know things like this, I would ask the question: “How much money is left over from a sale after you pay all your costs to make that sale?” This is called the gross margin. Comparing the industry to FUL, the industry comes in at 17.40%, so for every dollar sold, 17.4 cents is left over. It costs the industry 85.6 cents to make one dollar. FUL’s gross margin is 31.1%. Wow! This means that it is costing FUL only 69.9 cents to make a dollar. This shows great profitability as compared to the industry as a whole! The only other question I would ask is: “How good is the company at controlling its costs?” This is sometimes referred to as the net profit margin. If we divide the net profit by net revenues we come up with a %. The higher the % the better at money management the company is. The industry’s net profit margin is 6.4%. So, for every dollar they make (after taxes) their REAL profit is 6.4 cents. FUL comes in higher at 7.10%! They are far more profitable than the industry as a whole. The 5 year margins also have FUL above the Industry as whole.

Our Conclusion- this company is extremely profitable! We give it an “A”

Can the Company Pay its Debts?

With the financial collapse in 2008 of the markets and all the companies that would have gone under because they could not pay off their debt, we like to know how strong a company is before we are willing to invest our money in it. “Here Today, Gone Tomorrow” is not something we think wise. The first question we would ask any company is how much debt has you accumulated as compared to the amount of money and/or property you own? This is known as the debt/equity ratio. If a company has potential for growth it will have a lot more cash than it would debt. The industry ratio is 1.11 this means that on a whole; companies in this field have financed a lot of their assets through debt. This industry on a whole is above 1.00. FUL is not in the norm for the industry they pop up a very healthy 0.48 that is light years better than the average company they are compared to. And the second most important thing to look at is a company’s ability to pay the interest on its debt. Who wants to invest in a company that can barely pay its interest while its debt just grows fat and happy? This is called the Interest Coverage Ratio. The lower the ratio the higher the burden of debt is on a company. The ratio for the Specialty Chemicals is 13.20. FUL boasts 16.60! Wow can it pay its debts? Yes!, better than the industry as a whole!

Our Conclusion- this company can handle its debts with ease! We give it an “A”

How smart are they at using their money & assets to make more money?

I want to know how savvy the company is at making money with what they have now. This will give me an indication of how ell I think they can do in the future given we do not know what events may occur. The first thing I want to know is how well they generate income from the money shareholders give them. So if I give them a dollar what can I expect their return on that dollar to be? This is known as return on equity. The industry average is 15.9% while FUL is 17.2%. So they do better than the industry as a whole. Not only do I want to know how well they use their money to generate money but I may also want to know how well they generate money with all their assets. This is known as return on assets. While the industry as a whole over the last year has been terrible, FUL has faired much better. For every dollar in assets owned by the companies in Specialty Chemicals over the last year, they made $6.00. FUL made $8.63 cents for every dollar in assets they owned. Not bad! The last question I would ask to see how savvy they are investing in themselves is this: “When you invest money back into the business (whether borrowed or owned) how much money to you makes for every dollar you invest? This is called return on capital. For every dollar the industry reinvests in itself, they average a 7.6% return. FUL does much better at 10.3%!

Our Conclusion- this company is very savvy at making more money with the cash and assets they have now. We give them a A

How good is the Management team?

When I ask how good the team is that runs the company, I am interested in how well productivity happens. This can bee seen through how well a company moves the product it is selling and also how well the employees bring in money. So the first thing I want to ask myself is: “How productive are the employees?” This is called the revenue/employee ratio; it gauges the average income the work of an employee brings in. The higher the ratio, the more productivity the management team gets out of its employees. FUL does not do as well here. The industry average is $484,788.00 while FUL comes in at $404,325.00 so they are doing very well here. Now we all know we need money. Selling is good, but how well do they collect money from customers to pay for the sales? This is known as the receivable/turnover ratio. It gives me an idea as to how well the management team uses the assets they have to bring in their receivables. The higher the ratio the more it shows that a company is either able to operate with cash, or is very efficient in extending credit and collecting debt. FUL is still higher than the industry here, coming in at 6.9 while the industry is 8.2. They are still not as good as the industry. We would be concerned about one ratio though. How well do they turn over their inventory? This is the inventory/turnover ratio. Here they are more efficient than the Industry. A higher ratio shows product moving and sales happening. A low ratio shows inventory stagnant. This means money is not flowing and if prices drop with all that inventory it could really hurt the company. The industry average is 5.8 while FUL comes in a bit higher at 6.4 we like this.

Our Conclusion- this company’s management team does well but needs to be more efficient at moving inventory. We give it a C