Profitable Mid-Cap Drawing Attention to This Unique SectorEarnings reports are starting to come in for this past quarter—and many are from unique, small- and mid-cap businesses. This is the time when investment opportunities can be plentiful.
Keeping tabs on the reporting is a great way to find new companies for potential investments. The earnings game is managed, but generally speaking, the numbers are the numbers and a great quarter can be a good catalyst for a stock.
One interesting company that just reported another solid quarter of both revenue and earnings growth is Neogen Corporation (NEOG). This company operates in a very specific business area: food safety and animal safety products.
Based out of Lansing, Michigan, Neogen’s food safety division sells diagnostic test kits to detect foodborne bacteria, natural toxins, food allergens, drug residues, and plant diseases, along with sanitation. The company’s animal safety division is involved with animal genomics and sells all kinds of animal healthcare products, diagnostics, pharmaceuticals, veterinary instruments, wound care products, and disinfectants.
This is a good mid-cap business with a track record of increasing its revenues and earnings. The stock’s also been a very strong performer, not only because the company delivers on its promises, but because it’s the kind of enterprise that institutional investors just love to own. Neogen’s 10-year stock chart is featured below:
Neogen Corporation Chart
Chart courtesy of www.StockCharts.com
In its first fiscal quarter of 2014 (ended August 31, 2013), Neogen’s revenues grew a solid 18% to $58.6 million. The company recently digested an acquisition, but company management said it experienced significant growth in core product lines, as well as strong sales outside the U.S. market.
Earnings grew 17% during the quarter to $7.84 million, or $0.32 per share. Both revenues and earnings in Neogen’s first quarter of 2014 were records for the 31-year company. Of the past 91 quarters, 86 saw the company increase its revenues over the comparable quarter.
This isn’t the kind of business that jumps out at you as being an exciting double-digit grower, but Neogen has a lot of customers in agriculture, and that’s an industry that really spends on food and animal safety products.
Neogen has lots of cash in the bank and no debt. Naturally, a growing mid-cap enterprise like this has the attention of institutional investors, so the stock isn’t cheap, with a forward price-to-earnings ratio of 39. The company is delivering on expectations, though, and its latest quarter was very good, considering the lack of growth in the rest of the economy.
I find it very useful to consider esoteric businesses in an equity market portfolio. (See “How This Solid Old Economy Company Keeps Beating Tech Stocks.”) And while I tend to be a big believer in brand names, there are all kinds of non-headline companies that are actually very good businesses. Neogen is one of them, and it’s a company that more aggressive mid-cap investors should put on their watch list.
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