Defying today’s market downturn, water treatment company Hawkins (NASDAQ: HWKN) saw its shares move higher on Monday after announcing it has acquired all the assets of rival water treatment chemicals and equipment company Amerochem.
As of 12:25 p.m. ET, Hawkins stock is up 5.6%.
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“Amerochem has built an incredible business over the past 30 plus years,” explained Hawkins CEO Patrick Hawkins, “and has great relationships with its customers, suppliers and employees” that Hawkins intends to maintain and expand.
What Hawkins didn’t say, however, is how much it paid for Amerochem’s assets. Nor did the company give investors much information with which to determine if this deal is a good or bad one for Hawkins. Hawkins’ press release noted that its “footprint” will expand with the acquisition of Amerochem’s market, which is primarily in North Carolina.
The company did not give any indication of the size of the market in terms of either revenue or profitability.
Investors, therefore, seem to be taking it on faith that Hawkins made a good deal here. That’s not entirely without basis. Hawkins noted that this is only its second acquisition in North Carolina, which suggests it’s being careful about what it buys, and how much it pays. But investors are still flying pretty blind here as regards specifics.
Still, were I considering an investment in Hawkins stock, I’d be cautious. The stock trades for more than 27 times earnings, but analysts who follow Hawkins don’t expect the company to grow earnings much faster than 7% annually over the next five years. Free cash flow at the company is strong at $80 million generated over the last 12 months, in line with reported earnings. And Hawkins’ debt load is modest, less than $120 million net of cash, on a $2.2 billion market capitalization.
All things considered, I’d call this a good business but an overpriced stock. Lacking more data on the Amerochem acquisition’s specifics, I see no reason to change this assessment.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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