Why You Should Listen to this Micro-Cap Company

companyIn this market, real economic growth is a tough thing to come by. So, when you get real outperformance, it’s worth taking note.

Not too long ago in this space, we considered AAON, Inc. (AAON) out of Tulsa, OK. This is a good micro-cap enterprise that manufactures and installs heating, ventilation, and air-conditioning equipment—otherwise known as “HVAC.” The company just reported another solid quarter of genuine economic growth. (Also see “How the Old Economy Can Pay More Than You Might Think.”)

According to the company, its sales in the second quarter of 2013 grew to $91.2 million—up nine percent from sales of $83.3 million generated in the same quarter of 2012.

Earnings were an impressive $12.1 million, representing a gain of 30% over earnings of $9.3 million in the comparable quarter. AAON’s earnings per share were $0.33 for a gain of 32% over earnings per share of $0.25 in the comparable quarter. For any public company, these kinds of financial metrics are unusual these days.


For the first half of 2013, the company reported record sales of $158 million—up seven percent. First-half earnings were up 39% to $19.3 million.

I’ve followed this company for years, and equally as impressive as its growth has been is the company’s penchant for honest disclosure regarding business conditions. This is another thing that’s tough to come by these days.

Management said that second-quarter revenue and earnings growth was due mostly to price increases and a decline in the cost of materials. The company’s backlog increased to $66.2 million as of June 30, 2013, from $62.2 million comparatively. This is down from a record order backlog of $71.7 million as of March 31, 2013.

Company management said that it still expects 2013 to be a record year for revenues and earnings, but they also noted that there’s been a “noticeable softening” in business conditions recently.

AAON beat Wall Street’s second-quarter consensus estimates on revenues and earnings. According to the company’s track record of reporting and disclosure, I believe what this company says about its operations. It lends weight to the potential for the next recession.

As mentioned, AAON is a good company with a solid track record of wealth creation for shareholders and what I consider to be honest disclosure as a public corporation.

When I hear or read about “softening” from company management, it goes against what Wall Street is hoping for.

AAON is just one more small piece of the puzzle that makes me think that a technical recession is increasingly likely within the next 12 months. A recession within a secular bull market is perfectly normal, and historically, the U.S. economy is due for one.

I remain very cautious regarding the stock market and its outlook. The Federal Reserve has been in charge of equities for a number of years now, but change is in the air as Ben Bernanke’s term is almost up.

If you’re not interested in the mature industry of HVAC, consider following AAON anyway. It’s a straightforward business that offers the real deal. For sure, there are not enough of these kinds of public companies around.