After you have made tons of money shorting the euro and buying bonds like a genius this year, you may decide to put some of your winnings to work on fixing up your house.
If so, you're in luck because that will give you a chance to learn all about a company that has recently gone public to help it exploit a niche in the kitchen and bathroom remodeling business.
All hail CaesarStone (CSTE), which specializes in an engineered enhanced form of quartz for use in countertops -- a slice of the business that has grown at 4x the rate of the broad countertop market.
Engineered quartz is up to 93% crushed quartz bound with 7% polymers. Its primary competitors in the countertop segment are granite and (to a lesser degree) marble, both of which share many of the same visual qualities but can be more easily scratched or stained and as a result require annual resealing. Quartz, meanwhile is virtually maintenance-free.
The other big selling point for quartz as a countertop material is the typical price range of $40-$100 per square foot, which is in line with granite price points. Thus you have a product similar to granite visually that provides superior physical attributes at the same price.
So it's no wonder quartz has gone from about 2% of the global share of the countertop market to close to 10% in the past decade. While countertop sales are up 4% in the past few years, quartz use is rising at a 16% annual clip.
Founder Amos Amir was chief executive of an Israeli tile manufacturing company before visiting other factories in Europe as he looked to revitalize weak demand for his products. He opened his first CaesarStone factory in 1987 to focus on quartz, and after several years of difficulties, the company finally turned a profit in 1993 and has never looked back.
It's not often you get the chance to invest in an Israeli-based company, but that's where CaesarStone launched operations of its Classico line of engineered quartz surfaces suitable for wall panels, back splashes, floor tiles, stairs, and of course countertops. Despite three other product collection launches over the years, this still accounts for the majority of its sales with over 70 colors and various textures and thicknesses.
Australia is its biggest geographic market, representing 34% of sales, followed by the U.S., Israel, Canada and Europe. CaesarStone holds the No. 2 market position globally at 13%, behind only Silestone by Cosentino. Despite this, the global market remains highly fragmented with no other competitor holding more than a single digit share.
DuPont (DD), LG, Samsung, and Cambria are all manufacturers of quartz countertops, but the segment represents a tiny percentage of their overall businesses. This has created a significant opportunity for continued growth for specialist firms, especially in the U.S. and Canada, the two biggest growth markets currently.
According to Michael Rehaut of J.P. Morgan, CaesarStone's longevity in the sector and its commitment to research and development have given it a tremendous competitive advantage over its peers, leading to not only better operating efficiencies and cost savings but also a higher degree of product innovation.
The company has a slew of patents and is recognized as a premium manufacturer, allowing for price points at the high end of the spectrum. It has been able to grow revenue at a 19% clip annually, despite a global economic downturn that saw many of its peers experience revenue declines.
Shares of CaesarStone went public at $11 per share in March this year, valuing the firm at about $350 million, and it trades near that level now. A growing engineered quartz sector within the larger growing global countertop market presents a perfect storm.
Add to that a dominant market position and a premium brand name, and you can see why the company will be exciting when investors start to focus on growth in the homebuilding industry again. It would likely be a good buy over the summer around $9 to $10.75.