National Presto Industries Inc. – Boring and Beautiful

Adult Diapers, Defense supplies, and small kitchen appliances – product portfolio as diverse and uninspiring as these, topped up with no-frills, relentless execution, long term contracts and transparent and shareholder friendly policies, and stellar dividend history – this is National Presto Industries Inc. for you. The company has continued to show revenue growth and profitability through the recent economic downturn and the stock is still undervalued with forward PE less than 10. The company carries no debt, has a Price to Book ratio close to 2 and sports a pristine balance sheet. It is also a company with over 100 years of history, and one which apparently Benjamin Graham himself was a shareholder once.

Interested readers should take a look at the company financials, its quarterly and annual reports. You might be struck with how straightforward the reports are and the distinct lack of sub-texts, asterisks, and CYAs. While the prose is not so important to me, it does paint a picture of a company that is run for the benefit of the shareholders and is not trying to hide or obfuscate or otherwise paint picture that is rosier than the reality. The company also shies away from traditional PR, does not feel compelled to manage their business on a quarterly cycle and therefore being a 100 year old company has much less following on the street than one would expect.

But what really interests me is its positioning. Let’s take a brief look at its product segments.

Small kitchen appliances: Consumers are surely not going to be eating any less in the future. But what has started to happen, thanks to the recession, is a trend towards more home cooking and less eating out. This means that small kitchen appliances will continue to sell in high demand. In fact, National Presto has been enjoying significant sales gains in this segment (about 20% YOY in the most recent quarter). National Presto’s positioning at Walmart stores, will no doubt continue to be an asset.

Absorption Products: One only has to look at the US demographics to understand that the demand for adult diapers is not going to slow anytime soon. The wave of baby boom retirees and the increasing life expectancy will continue to demand more of these products.

Defense products: National Presto makes ammunition and other products for the US government under a long term contract that was recently renewed. Given the state of current geo-politics and the fragile nature of many economies and political entities around the world, it is quite understandable if the US defence spending continues to remain high or even increase.

In short, not only is the company well run and the stock undervalued, it is also positioned to compete in prosper in the segments that have the ability to do well in the future regardless of the other economic factors. As the stock market continues to be volatile, any drop in the NPK stock price should be seen as an opportunity to buy. NPK is one of our top small cap stock picks.

Disclaimer: The author owns and is actively adding to his stock position in National Presto (NPK) as of this writing


    • says

      Jeff, I had read your earlier parts. Thanks for the link. It is a very detailed analysis. Although with my analysis I put the valuation of NPK much higher, with good margin of safety I was prepared to pay around $100 (this was before the $8/share dividend). In reality, I paid close to your buy price of $75 (dividend adjusted) so I should say I am pleased.

      Once purchased, I am willing to hold it for the long term as long as current management practices continue. I think the company is very shareholder friendly with laser focus on execution.

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