In the previous post I discussed my calculation that place the downside price target for National Presto (NPK) shares at $45 which is approximately $25 or 35% below today’s closing price of approximately $70 per share.
So what is the upside potential for NPK shares?
If we make an assumption that the company can grow revenue in the small apps business in line with inflation of 3% and stabilize EBITDA margins, the small apps business becomes a “going concern” and the valuation increases substantially to $54 per share.
If you assume that the defense business turns into a “going concern” and has annual free cash flow similar to 2007 and apply a below market average multiple of 10x the defense business value jumps to about $32 per share from the worst case scenario of $5 per share.
If the absorbents business every shows and operating profit or the company can sell it for more than 50% of what it cost to build the factory and buy equipment just a few years ago this also increases the upside for NPK shares.
Simply assuming that this 100 year old company's two main business lines are going concerns with no growth beyond inflation puts the target price close to $100 per share which represents about 40% upside from current levels.
If one is to assume that the company’s small apps business can grow even slightly above inflation or the company uses its cash to continue to build out the defense business or to make an acquisition with decent ROE potential the upside keeps growing substantially beyond $100 per share.
* DISCLOSURE: I or accounts I manage may be long or short any and/or all stocks mentioned in this post. This is not a recommendation to buy or sell any security. For informational and educational purposes only.
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