In the digital age, some might think demand has all but disappeared for the business products that are the crux of Ennis Business Forms, Inc. The Company manufactures and markets a variety of vital business products for situations where physical form is necessary, including labels, envelopes, pressure sensitive labels, continuous forms and laser cut sheets, to name just a few examples. Sales topped $400.0 million in the last full fiscal year ending February 2022, after the Company experienced to a disruption in sales activity during the height of the COVID pandemic. In the current fiscal year Ennis is poised to report modest, but respectable year-over-year growth at the topline.
Earnings growth has us even more enthusiastic about this mainstay stock. In the first nine months of the current fiscal year, the Company has already exceeded operating income for the full fiscal year 2022. Supply chain improvements, operating efficiencies and careful product portfolio management have been keys to delivering more to the bottom line. We are particularly impressed with a consistent conversion of sales to operating cash flow – 12.67% in the most recently reported twelve months. Since Ennis is modestly leveraged, most of the Company internally generated cash can be used for growth investment.
Our ultimate test is the generation of excess returns over cost of capital. Return on invested capital of 9.08% exceeds weighted average cost of capital estimated at 7.7%, delivering excess return of 1.4%.
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