Friday after the market closed, Paul Mueller Company (OOTC:MUEL) announced its 2023 financial results, where it reported earnings per share of $4.32 for the fourth quarter and $15.75 per share for the year.
Most importantly, the company published a separate press release that we believe is their attempt at sending a message to the market that they are not a value trap anymore.
They announced they are willing to buy $15 million worth of stock from any shareholder who may want to sell (otherwise known as a tender offer) at $80.00. This price is 15% above the current market price. Furthermore, the amount of shares that could be bought with $15 million represents about 15% of the company’s outstanding shares.
The stock is currently selling at a P/E of 4.4x. Just getting to a P/E of 10x would equate to a $150 stock, a scenario that could only possibly happen if investors no longer treat MUEL as a value trap.
We have written several articles on value traps over the last few weeks.
This included a pitch on December 1, 2023. That stock was indeed… Paul Mueller Company (MUEL).
Remember, the term “value trap” refers to a stock that appears to be a bargain based on traditional valuation metrics but is actually “cheap” for legitimate reasons, like a company showing a lack of growth for years or if there are hidden risks that could quickly lead to a company losing money or jeopardize the entire business plan.
We covered this topic with Brandon Beylo (@marketplunger1) , specifically on an episode of Avoiding The Crowd in December 2020.
MUEL specializes in the design and manufacture of stainless steel processing equipment and services for the dairy, food, beverage, chemical, pharmaceutical, and other industries. And as the stock symbol insinuates, it clearly had the traits of value trap (a reason why so many investors have hated the stock).
Quote from our December 1 pitch:
“It’s not often that you see a stock growing its sales and earnings, selling at a P/E of 3x, right under its book value per share, where cash makes up the majority of its book value. I’m looking at one right now that could more than triple to trade at a P/E of around 10x and still be cheap. More on this in a second.”
The stock now sells at a P/E of only 4.4x, even after increasing 27% ($55 to $70) from the time our pitch was published on December 1, 2023.
Anyways, we wanted to show you all this because this illustrates that the market doesn’t always get it right, especially when dealing with value traps.
Have a great weekend. We can’t wait for Monday morning’s open to see how the market reacts to the MUEL news. Hey, maybe the stock will go down and present us with a gift. 🙏
If you believe us, and you think we’re onto something with our strategy to capitalize on investors wrongfully assessing certain cheap looking stocks as value trap stocks…then:
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As a matter of fact, I’m not sure if you saw it, but we just published another value trap pitch on a company a few days ago. It pays a nice dividend of about 7%, and management has put growth initiatives in place that we think will take this company that appears to be a “value trap” to a pure growth company.
Moreover, our confidence that management is telling investors that it’s ready to unlock unrecognized value by the market is strengthened by the fact that the company recently paid a very large special dividend to shareholders.
It’s selling a P/E of under 10x. The re-rate of valuation from a value trap to a growth company assumption should eventually result in a price to earnings ratio exceeding 25x.
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Lastly, watch this video on how we find hidden information, before others, in the microcap universe. This is a very important step of the wrongfully accused value trap discovery process.
~ Maj Soueidan, Co-founder GeoInvesting