Graftech: On Graphite Coattails

by Debra Fiakas CFA

Graftech makes graphite products like this crucible for traditional industries, and is expanding its products for alternative energy industries. Photo by Vladnov

Graftech International Ltd. (GTI:  NYSE) has been in business over a hundred years, supplying graphite materials and products to the steel industry and other manufacturers.  Most investors would put Graftech on a list of ‘dirty’ companies, not with alternative energy leaders.  However, with technological innovation Graftech has found new customers for its graphite materials.  Fuel cell components, wind turbine blades, energy storage devices, and electronic thermal management components are just a few of the products critical to the establishment of alternative energy sources.

Graftech has struggled some in recent months to keep momentum going at this top-line, but long-term the company has experienced strong growth.  The addition of new customers in the alternative energy industry has been a part of that growth.  In the most recently reported twelve months Graftech recorded $1.3 million in total sales and delivered $66.9 million in net profits.  Operating cash flow was $144.5 million.

GTI is trading at 17.4 times trailing earnings, which is just under the average price/earnings ratio of its industrial peer group.  There is a 30% differential between the trailing and forward price/earnings ratios, suggesting an impressive appreciation potential. A beta of 1.40 means relatively low volatility for the holder waiting for a price increase.

Of course, the half dozen analysts who have published earnings estimates for Graftech could be all wrong in their predictions of future earnings.  That would cast doubt on the anticipated ramp up in stock price.  One thing for certain is that graphite has a compelling future in the alternative energy sector and it seems reasonable Graftech will be a beneficiary.  
 
Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.