Apogee Enterprises Inc: Why Apogee Stock Is Worth a Second Look

Apogee Enterprises IncAPOG Stock Battered but Worth a Look?

The small-cap sector dissipated in February as traders dumped risky trades and moved to the safer confines of large-cap, lower-beta stocks. What we witnessed afterwards was an encouraging rally that drove up some small-caps to double-digit gains.

There are excellent opportunities for the astute investor who is willing to absorb some risk. A stock that was sold off, but is rallying with excellent risk-to-reward trade potential, is Apogee Enterprises Inc (NASDAQ:APOG), which has a market-cap of $1.28 billion.

APOG is intriguing as a maker of specialized glass that’s used in two segments, architectural products and services and large-scale optical technologies.

While I believe Apogee offers good growth prospects and underlying fundamentals, the stock market has not shared my sentiment. APOG stock is well off from its 52-week high of $61.05 in June 2015 to the point where the valuation is worth a closer look.

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Versus the S&P 500, Apogee has underperformed with a decline of 18% over the past 52 weeks, but I’m seeing some positive moves on the chart. The moving average convergence-divergence (MACD) may be ready to flash a “Buy” while the relative strength index is rising.

Apogee Enterprises Inc NASDAQ

Chart courtesy of www.StockCharts.com

My Bull Thesis Behind Apogee

The numbers behind APOG stock support my bullish thesis going forward.

On the quarterly front, Apogee has delivered earnings-per-share (EPS) beats in five of the last six quarters. In the fiscal first quarter, APOG reported adjusted earnings of $17.7 million, or $0.61 per diluted share, up 46% year-over-year and $0.12 above the consensus based on a slight revenue beat.

Looking back, Apogee has had a record of consistency.

Revenue advanced higher in three straight fiscal years from $700.22 million in FY13 to $981.19 million in FY16. APOG has also been able to manage the expense side, as gross profits have followed revenue higher in each year.

Better yet, estimates from Thomson Financial peg Apogee to expand its revenues by 9.8% to $1.08 billion in FY17 and 10.9% to $1.19 billion in FY18.

Earnings have followed revenue higher and the positive trend is expected to hold. Watch for earnings to come in at $2.80 per diluted share in FY17 and $3.30 per diluted share in FY18, according to Thomson Financial.

The market valuation for APOG stock looks reasonable at 13.31X its FY18 EPS and a price-to-earnings growth ratio of 1.55.

The short sellers are staging a bet against Apogee stock with 3.27 million shorted shares, or 11.65% of the float, as of the end of May. If I’m right, the shorts will run to cover their positions.

Apogee is just one example of the numerous beaten-down small-cap stocks that currently flood the marketplace and could offer a decent investment opportunity on weakness. As with any investment, due diligence is required before purchasing any small-cap stock.