This Company Has the Right Framework for a Solid Investment

Weird markets create mispriced stocks. Apogee Enterprises can serve as a prime example of this. From fiscal 2012 through fiscal 2019 (ended Feb. 29, 2020) the company posted substantial gains across all major business metrics. Those solid gains were fully reflected at the stock's peaks in both 2025 and 2017, when APOG topped out at $61. As of 10:40 a.m. on Monday, though, APOG was offered for just $22.22, greater than 63.5% below those two pinnacles. It closed the day at $23.24. The share's total return from exactly eight years ago was a small fraction of what would have been expected from a better than 260% gain in earnings per share. That suggests a huge catch-up move higher could kick in at any time. What is Apogee really worth? In the four years from 2016 through 2019 APOG typically fetched about 15.3-times earnings, accompanied by around 1.5% in current yield. As of Monday, its price-to-earnings was just 11.1-times Value Line's fiscal 2020 estimate, while paying nearly 3.4%, more than double APOG's average yield since 2011. A simple reversion toward the mean valuation could easily support price targets north of $30 by Dec. 31, 2020 and perhaps $37.50 by the end of 2021. Neither goal appears far-fetched. Both might end up proving too conservative. APOG changed hands at $34.24 as recently as Feb. 21. It peaked between $34.60 and $61.00 each year from 2013 right through 2020 year-to-date. Independent research house Morningstar does not provide analyst coverage on APOG. It does show us its computer-generated present-day fair value estimate for it, though. As of Monday, that number for APOG sat at $29.27, almost 27% above its current quote. The Monday morning sell-off briefly took APOG into Morningstar's 5-star rating area. Note, too, that Apogee fetched $46.70 less than one year ago. Option minded traders can play APOG via sales of its Nov. 20, 2020 expiration date puts at $20, $22.50 or $25 strike prices. Worst-case, forced purchase prices (with APOG at $22.22) dropped to either $17.10, $18.30 or $19.20 respectively. Readers often ask, If people are betting on big declines by purchasing those puts, doesn't that mean they might know something? I included the quotes on APOG's Nov. 20, 2020 $25 call to refute that. Someone else was willing to pay $2.60 per share for the right to buy APOG at $25 for the identical expiration date. The break-even for that call buyer would be $27.60. Put buyers need big down moves of from 14% to 23% by expiration day to break even. That call buyer needs a rise of at least 24.2%. They can't both be correct. Neither one likely knows anything. They are simply gamblers wanting to speculate with relatively small amounts of capital. Option buyers are similar to lottery ticket players. They are willing to trade a large chance of total loss for the chance, or thrill, of making a huge but unlikely score if things work out perfectly. What we can know for sure is that owning APOG, at the $18.80 if exercised price of those November $22.50 puts would have been a winning position for about 87 of the most recent 90 months. Apogee Enterprises is a proven growth company at a decidedly cheap valuation. Buy some shares, pocket the 3.4% yield, and wait for its almost inevitable rebound. Total return could easily exceed 70% over the coming year and half. Selling the described puts will probably work out very well, too. Maximum gains on those, or any other option sales, always equals 100% of the premium received up front. Correction: Careful readers noted that an earlier version of this story discussed January puts; the story has been corrected to November options, the longest ones now available.

This Company Has the Right Framework for a Solid Investment

Apogee Enterprises has tremendous un-reflected value.

Columnist Conversation

Two Good Signs -- Especially for Small-Cap Investors

More Insider Buying in American Woodmark (AMWD)

This Weekend on Real Money

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.