Finding a company that has made it through current economic conditions in decent shape is a key to reaping solid returns. However, it’s important to identify the reason the company did well and if it is capable of continued success. Does the company have a track record? Is their product sound? Does it have a solid customer base? If one can indicate positives in these areas, a second look and/or investment may be warranted.
Patrick Industries Inc., a manufacturer and distributor of building products for the recreational vehicle and pre-fabricated home markets, works to provide a full range of components for the manufacture of these products. The company also manufactures and distributes to the automotive aftermarket and kitchen cabinet markets. Founded in 1958, the company is widely considered a leader in the modular home marketplace.
In recent years, the marketplace for modular homes has increased substantially. Current economic conditions notwithstanding, component parts have become a fairly elastic part of the manufacturing process owing to their less expensive manufacturing costs and environmentally efficient nature. As space requirements and overall building costs of new housing structures continue to rise, while values decrease, modular options should become even more attractive. Although the company does have a position in the recreational vehicle and automotive aftermarkets, its main focus is within the modular home component market, which should slowly gain favor as the world economy moves forward. Overall, this should propel the company more quickly than what appears to be some movement from more traditional home building companies.
During the first quarter 2010, the company saw net income increase over $18 million, or 41%. Generally, this increase can be attributed to favorable governmental stimulus within the recreational vehicle marketplace. From a general standpoint, however, one may consider this occurrence as a “one off” event while the company’s position within the modular home segment may be of a longer duration. Taken as a whole, gross profit in the first quarter increased 10.2% indicating that the company has a solid footing in a difficult marketplace. Although finding companies that have weathered the current economic conditions, to be poised as growth targets, is becoming more difficult of late, Patrick Industries may well be a gem just waiting for the capital markets to return in the not too distant future.
Let us hear your thoughts below: