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American Vanguard Corp. (AVD) Business Model Leverages Established Specialty Chemical Demands

Professional stock investors evaluate current values of future cash flows. Investments needed to establish new brands tend to have long gestation periods. They suffer from a variety of risks as well. That is why late entries into established market segments can improve discounted inflow projections.

This company is a member of the Chemicals Manufacturing Industry. It works through a set of subsidiaries strung out over Europe, Mexico, South America, and the United States. The company has a strategy of acquiring large volume molecules from their inventors. Research based companies need to focus their resources on new brands. This company takes advantage of this need by taking over established and mature products. This model fosters early payback of invested capital.

Another competitive edge for the stock relative to other members of the Basic Materials Sector is that the company has substantial interests in agriculture. Though some brands have human applications, most of the company’s revenues come from crop protection and from the livestock segment. This augurs well in the current world scenario of scarce farm produce.

The company’s strategy and its structural strengths reflect in the financial results and stock performance. Dividends have grown by more than 22% during the past five years, though the Payout Ratio has stayed below 10 on a Trailing Twelve Months basis. The five years Sales Growth has been a healthy 16.57%. The Gross Margin during this period, at over 45%, has beaten the industry norm. Return on Equity has averaged 19.12 over the last five years, which is substantially higher than the industry figure of just 12.60.

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