ICOC

[David Randolph]

1. Introduction
1.1. Profile

With 19 locations in 10 countries, ICO Polymers (ICOC) produces custom polymer powders for rotational molding and other polymer related businesses, such as the textile, metal coating and masterbatch markets. ICO remains an industry leader in size reduction, compounding and other tolling services for plastic and non-plastic materials. ICO's Bayshore Industrial subsidiary produces specialty compounds, concentrates and additives primarily for the plastic film industry. Additional information about ICO, Inc. can be found on the Company's website at http://www.icopolymers.com. Contact: CFO - Jon C. Biro at 713-351-4100.

1.2. Initial Video Analysis

A video Analysis from 3StocksOnFire.org

2. First reason: the chart is bullish



We've just had a bullish breakout to a new 9 year high. No doubt the trend is positive.

3. Second reason: there's revenue and EPS growth

• ICO, Inc. Announces Record Second Quarter Financial Results
PR Newswire (Wed, May 2)



Fiscal third quarter will probably be even better than fiscal 2nd quarter:

"Our management team did a great job rebounding from the difficult pricing environment in our first fiscal quarter," stated the Company's President and CEO, Mr. A. John Knapp, Jr. "Resin prices stabilized during the quarter and, in some markets, rose modestly. Of particular interest is the strength of our foreign operations, which provided 68% of our revenues during the quarter. Our operating results strengthened over the course of our fiscal second quarter, and we expect this momentum to carry into our third quarter."

4. Third reason: Valuation is low

ICOC's current market cap is $221 M and the company is expected to have revenues of $367.4 M in fiscal 2007, therefore the Price to Sales Ratio is 0.6. The Synthetics industry average is 0.82.

I estimate ICOC will have EPS of $0.6 - $0.7 in fiscal 2007 (the company already had $0.34 EPS in the first two quarters). So, the forward Price to Earnings Ratio is 13. Again, the industry average earnings multiple is 20.27.

No doubt ICOC is trading at a discount.

5. Fourth reason: Redemption of preferred shares

You know how preferred shares eat the value of common shares, because they suck all the profits to their fat dividends. I believe their existence was the main reason why ICOC was undervalued in the first place, the stock couldn't go over $9.125:

During November 1993, the Company completed its initial offering of the $6.75 Convertible Exchangeable Preferred Stock (the "Preferred Stock"). The shares of Preferred Stock are evidenced by Depositary Shares, each representing 1/4 of a share of Preferred Stock. A total of 1,290,000 Depositary Shares were sold at a price of $25 per share. Each share of Preferred Stock is convertible into 10.96 shares of the Company's Common Stock (equivalent to 2.74 shares of Common Stock per Depositary Share) at a conversion price of $9.125 per common share subject to adjustment upon the occurrence of certain events.

But the company made a big effort to build common shareholder's value and redeemed most of the preferred shares outstanding:



The practical side of all this is that ICOC is now free to go above $9 and beyond. No more reason to keep this stock undervalued.

6. Trading Plan

Buy ICOC, 6.66% of capital as always.

[yukiii]

Looks good, will wait for a better entry point.

[Dracull]

I bought ICOC last week after the breakout...you can wait for the pullback, or not. That's why I love TA 

[David Randolph]

Looks good, will wait for a better entry point.

Good luck yukiii, but with the way things are going, probably your "better entry point", or "buy after a pullback point" will be higher than the current price, so I would buy right away and forget about short term fluctuations, because, they're unpredictable.

I bought ICOC last week after the breakout...you can wait for the pullback, or not. That's why I love TA 

Nice buying point Dracull. I hope my fundamental analysis helps you strengthen your hands in ICOC.

The long term chart on my initial video analysis shows you how significant the current bullish breakout is, as the stock closed at a new 14 year high yesterday. Since 1993 everybody knew it was almost impossible for ICOC to move above $9.125 (because of that preferred shares issue), but not anymore.

Fundamentally, the optimal selling price is $17.65, so I'll keep on holding ICOC.

[David Randolph]

ICOC had $0.20 EPS from continuing operations over the 2nd fiscal quarter of 2007 (ended March 31st, 2007):

«Income from continuing operations increased $2.5 million or 85% to $5.5 million, or $.20 per diluted share.»

If the next 3 quarters resemble this one, ICOC will earn $0.80 EPS over this 12 month period. The synthetics industry trades at 20.73 times earnings.

So, if ICOC makes at least as well as this past quarter and trades at the industry average valuation (I don't see why not in both cases), it will then be a $0.80*20.73 = $16.58 stock.

My valuation model points to an optimal selling price of $17.65.

I'll keep holding ICOC.

[David Randolph]

ICOC seems overbought, doesn't it? But fundamentally the stock is worth a lot more, so why should it go down? I guess that now that ICOC closed at a new 14 year high, the technical behavior of the stock changed completely, going from range bound to a persistent trend. Volume has been above average on this breakout process.

As we've seen over the last few updates, the stock is trading at a deep discount to its industry peers. I believe this discount (which isn't new), was due to the fact that there were a lot of convertible preferred shares outstanding at $9.125. Well, not anymore since the company bought back and retired most of those preferred shares. Therefore, the market is now able to correct the discount in the valuation, taking ICOC closer to its industry peers valuation, which is 20.73 times earnings.

I'll continue holding ICOC.

[David Randolph]

Another positive day for ICOC. I guess that people that waited to buy on a pullback may pick up a chair (or a bed) and wait more comfortably, because the bull trend persists.

But of course, there will be a pullback somewhere down the line, my point is the pullback will probably be to a higher point than my initial entry. I guess I was lucky on this one, because on others there was a correction right after I bought.

Just sit tight and hold ICOC.

[wxmang]

"Another positive day for ICOC. I guess that people that waited to buy on a pullback may pick up a chair (or a bed) and wait more comfortably, because the bull trend persists.

But of course, there will be a pullback somewhere down the line, my point is the pullback will probably be to a higher point than my initial entry. I guess I was lucky on this one, because on others there was a correction right after I bought.

Just sit tight and hold ICOC. "

I couldn't resist the temptation to pull the trigger on some ICOC
Hopefully the 14 year high will be the new support.
I don't see why not because of the cheap valuation!
In at 8.64

[David Randolph]

Someday ICOC would inevitably fall, but it didn't have to be a -4% day, did it? 

At least someone took advantage of the people selling ICOC to offset losses elsewhere:

I couldn't resist the temptation to pull the trigger on some ICOC
Hopefully the 14 year high will be the new support.
I don't see why not because of the cheap valuation!
In at 8.64 

Good move wxmang

I'll continue holding ICOC.

[kpunarc]

in at $8.63...yeah!

[ygtrdr]

Apparently this was also a Motly Fool top pick back in October.

[BigSully1]

Apparently this was also a Motly Fool top pick back in October.

It's been on Richard Moroney's buy list also. One of the few showing great strength through the market downturn. I've been watching and wanting, and finally bought some today. Maybe more later....

[gix330]

luckly I bought some some weeks ago, and i just hedged SKK and SDS yesterday since i thought this correction would be a while.

[David Randolph]

Apparently this was also a Motly Fool top pick back in October.

Really? They experienced a 50% plus drawdown then. Anyway, making money now. I'm glad some of you guys are picking up ICOC on this short term decline, I don't think it will last long.

I'll keep holding ICOC.

[David Randolph]

Unfortunately ICOC had a small correction in line with the general market. I'm glad it is almost done and the stock is set to breakout to new 14 year highs. I'll keep holding ICOC.