Shares of Methode Electronics (MEI) soared nearly 16% on Thursday after fiscal first-quarter earnings absolutely crushed Wall Street estimates. This Fort Worth, Texas-based firm provides critical components for the automotive, aerospace, and industrial equipment industries.
Now, this explosive growth has left many investors wondering what’s driving the stock higher – and, perhaps more importantly, asking if this is a one-off event.
A deeper look at the numbers shows that MEI’s soaring growth is fueled by a strengthening in its core automotive business, as evidenced by the company’s unexpectedly large fiscal first-quarter revenue growth numbers.
The company saw its revenue shoot up 30% to $218.1 million. This was significantly above analysts’ consensus of $193.7 million for the quarter.
But the real story is how thoroughly MEI demolished its own estimates…
On an annualized basis, current revenue will exceed not only analysts’ expectations for 2014, but will also blow by the company’s 2015 and 2016 projections, too!
This puts the company on pace to achieve a 16% compound annual growth rate over the next several years, with virtually nothing in its path to slow it down.
The chart below identifies estimated revenue projections through 2016…
These results are turbo-charged by the global auto industry boom, which has seen the annual rate of U.S. car sales for August exceed 17.5 million units.
This makes August 2014 the best month for the auto industry since July 2006.
And as American consumers continue to replace their aging autos with trucks and smaller sport utility vehicles – and as the boom in auto sales is expected to last at least through 2018 – MEI’s growth will continue to rise.
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What’s more, the company has made inroads in two other high-margin automotive sectors…
Commercial vehicles will see increased sales over the next two years – something MEI is ready to exploit.
While it’s true that these relationships will have little real impact on revenue and profits in the near term, they have the potential to propel MEI to heights not available to most companies with market caps of just $1.5 billion.
To top it off, MEI’s prospects look even better, as the world’s second-largest automaker continues to improve.
General Motors (GM) recently announced that demand in China is so strong that the company’s annual sales may top two million vehicles this year – four years ahead of schedule.
And as GM gets fully up to speed, MEI will continue to leave its competition in the dust.
Clearly, Methode Electronics is in a great position to capitalize on its growth prospects after such a great performance in the first quarter.
But more important is the expectation for the company to continue accelerating.
While the company’s business isn’t sexy, Methode Electronics is a name to watch…
That being said, investors looking to get in the driver’s seat of this fast-moving speedster will be best served by waiting for the stock price to retrace a bit after yesterday’s momentous move, which has redlined some of its fundamental metrics.
Once its temperature gauge shows some cooling, though, the open road is calling…