Mesa Labs
Solomon's Select, by Mark Robertson, Managing Partner October 1st, 2015
MLAB is proof positive that “Up, Straight and Parallel” does indeed exist among the smaller, faster-growing companies.
We last featured Mesa Labs (MLAB) as the December 2012 Solomon Selection. Although we generally avoid repeat selections, MLAB serves as a poster child for a display of management excellence even among the smaller companies. The return on our 11/30/2012 selection is 36.2% (annualized) so far and the recent price pullback provides another opportunity for accumulation.
The following company description is typical of the entries found in the Hoover’s Handbook of Emerging Companies — a reference we’ll be spending some time with this month.
Mesa Labs is reaching a plateau in the field of measurements. The company makes niche-market electronic measurement testing and recording instruments for medical, food processing, electronics and aerospace applications. Mesa’s products include sensors that record temperature, humidity and pressure levels; flow meters for water treatment polymerization and chemical processing applications; and sonic concentration analyzers. The company also makes kidney hemodialysis treatment products including metering equipment and machines that clean dialyzers (or filters) for reuse. MLAB also provides repair calibration and certification services. Customers in the U.S. account for 75% of annual sales.
Small-cap investor Royce & Associates owns 13% of outstanding Mesa Labs stock.
Mesa Labs (MLAB): Business Model Analysis. Mesa Labs is proof positive that “Up, Straight and Parallel” does indeed exist among the smaller, faster-growing companies. Combine double-digit growth with improving and stabilizing profit margins and a superior return forecast is the result. Discover promising futures and invest in high-quality companies with excellent management. In some cases an added bonus can be that they’re right in your back yard.
Growth, Profitability, Valuation
The growth rate forecast (based on 2011-2016) is 19.9%. Based on the visual analysis of the business model, 15% or higher, seems feasible.
2014 delivered a net margin of 13.4% versus a 7-year trailing average of 20.2%. It seems feasible that margins could return to a slightly higher level. The P/E trend is a perfect example of an undiscovered company becoming discovered. Invest when P/E ratios are low to benefit from significant P/E expansion as the company becomes more widely known and in demand. Thanks, Hoover’s.
Mark Robertson
Mark Robertson is founder and managing partner of Manifest Investing, a source for research and portfolio management focusing on strategic long term investors.