Friedman Industries

Buy Price
Holding Type
Investment Theme
Trade Date
June 10, 2016

Friedman Industries (FRD)… (June 10, 2016)

Bought this stock at $5.96 per share. With 6.8m shares out, it is a $40m market cap. Company has no debt with a few million in cash holdings. They are a steel processor of coils, sheets, and tubes mainly for Nucor and US Steel. The stock has taken a beating going from $10+ down to $6 today.

It is a net-net mostly through inventory and receivables with total book value of $9.40 (0.63x book). Though it was a profitable company, the recent downturn in commodity markets has caused the company into the red. They recently finished a large capex program and own all of their real estate in TX, AR, and AL.

This could be a decent trade up to a reasonable level of book value (0.8x gets to $7.50 per share for 26% upside). Fundamentals would need to improve for a serious re-rating to book value or higher. I am less confident in this latter scenario.

UPDATE: I sold this position at $6.22 per share on December 8, 2016. A combination of a rally in commodity prices and a Trump election helped propel steel and energy stocks. Friedman was slow to rebound but ultimately moved from $5 to $6+ in a few days. This is more of a commodity bet than I originally had hoped. In addition, I currently have better ideas with better catalysts and greater upside.