In this article, let's take a look at Kronos Worldwide, Inc. (KRO, Financial), a $1.49 billion market cap company, which produces and markets titanium dioxide pigments (TiO2) worldwide.
Revenues and EPS
Looking at profitability, revenues slightly declined by 1.3% but earnings per share increased significantly in the third quarter compared to the same quarter a year ago ($0.28 vs -$0.26). During the past fiscal year, it reported poor results of -$0.87 versus $1.88 in the previous year. This year, Wall Street expects an improvement in earnings ($0.79 versus -$0.87).
The net income increased by more than 200% when compared to the same quarter one year prior, to $31.90 million from -$29.90 million.
Bad Numbers
Net operating cash flow has significantly decreased to $6.70 million when compared to the same quarter last year. Further, the stock price has declined by 21.90% from its price level of one year ago.
Margins
The net profit margin is ranked higher than 75% of the 1117 Companies in the Specialty Chemicals industry and it almost doubled it, with 6.01% vs 3.87%.
Profitability
Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
| Ticker | Company | ROE (%) |
| KRO | Kronos | 11.1 |
| TG | Tredegar Corp | 9.08 |
| CBT | Cabot Corp | 8.27 |
| BAK | Braskem SA | 10.25 |
| Â | Industry Median | 7.02 |
The company has a current ROE of 11.1% which is higher than the industry median and the one exhibit by it peers: Tredegar (TG, Financial), Cabot (CBT, Financial) and Braskem (BAK, Financial). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
| Year | ROE (%) |
| Dec-05 | 16.22 |
| Dec-06 | 19.1 |
| Dec-07 | -15.52 |
| Dec-08 | 2.47 |
| Dec-09 | -11.01 |
| Dec-10 | 24.33 |
| Dec-11 | 38.09 |
| Dec-12 | 22 |
| Dec-13 | -10.21 |
| Dec-14 | 11.56 |
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 14.9x, trading at a discount compared to an average of 29.0x for the industry. To use another metric, its price-to-book ratio of 1.91x indicates a discount versus the industry average of 2.08x while the price-to-sales ratio of 0.9x is below the industry average of 1.16x. This metrics indicate that the stock is relatively undervalued and subject to a buy recommendation.
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Final Comment
The company has a good ROE, as well a good relative valuation levels. We saw strengths on earnings growth, a good net profit margins and a decrease in the stock price during the past year. All the things we have mentioned, makes me feel bullish on this stock which investors have to pay a low level to obtain a dollar of earnings.
Hedge fund gurus Paul Tudor Jones (Trades, Portfolio) holds 64,676 shares, up by 140% on the fourth quarter; the value of the stake amounts to $842,000 at the end of the year.
Disclosure: As of this writing, Omar Venerio did not hold a position in any of the aforementioned stocks
