Why Acme United Is Undervalued

Acme United non-stick scissors family

The new titanium non-stick scissors work like a charm even in the most difficult environments

In FY 2009, Acme United’s (ACU – $9.45) sales will decline for the first time in many years due to a general drop in demand and due to inventory reductions with its customers. In our third quarter update report we not only explain why it’s safe to assume that revenues and earnings will increase again once the economy turns around, but we also expand on the Company’s growth drivers which should bring revenues and earnings above pre-2009 levels.

We feel confident because:

  • Early October 2009, Acme United announced that its Board of Directors approved a new stock repurchase program of up to 200,000 common shares. The Company purchased about 101,000 shares at $8.65 a few days before this report was published; we view this as a very good value to shareholders. During the past 12 months the Company repurchased over 350,000 shares of its common stock and paid well over $650,000 dividends to its shareholders.
  • One of the growth drivers for the near and long term future is the Company’s proprietary non-stick technology. With a non-stick coating, blades can be used in difficult environments like the floral area or arts and crafts area. A family of non-stick scissors and a non-stick titanium pencil sharpener has been brought to the market. In the coming months, the non-stick technology will be applied to other items for the school, crafts, kitchen, garden and industrial markets and will be introduced at a wide variety of retailers. Results will show in 2010.
  • The famous Camillus knife brand, which was re-launched by Acme in May 2009, will soon hit the market. The Camillus knives have been accepted in two major DIY chains for 2010, in one of the largest retailers and at a number of leading industrial distributors. Additionally, the Company is showing the Camillus line to hardware distributors like Lowe’s and ACE Hardware, and retailers like Wal-Mart and Target. This is just the beginning of what the Company thinks will be another exciting growth prospect.
  • Acme United’s balance sheet is robust as it has more than $6.5 million in the bank, a good current ratio, excluding bank debt, of almost 4.7 and a book value of $7.85 per share. At its current stock price, Acme is trading at a Price/Book of only 1.20.

Based on the financial information in this report and the positive outlook for the Company’s new product introductions we reiterate our buy recommendation and adjust our 12-month price target slightly upwards from $11.83 to $11.97, which is 26% above today’s stock price.

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