Here's My Best Stock Pick for the Next 12 Months -- Wanna Challenge It?

I've got a stock that I'm betting big on -- tell me if you don't like it and why, and what you'd suggest instead. It might just land in a column on Real Money.

Ready for a challenge?

I'm going to present you with my No. 1 stock pick for the coming 12 months. I simply can't find any reason that the stock I'm about to show you won't at least double from its current quote a year from now.

My challenge to you is to find fault with my logic. Let me know why you disagree with me or my conclusions about it.

If so, my secondary challenge is to give me your best stock pick going forward and let me know what makes it better than mine.

I promise to personally recognize all subscribers who send in terrific picks. In many cases, I'll also write up your selections in article form to let others know of the worthiness of your stock.

Here is my No. 1 choice from its Thursday price: American Woodmark (AMWD) .

AMWD had a very poor year in fiscal 2021. There were some very unique reasons for that, though, which are now reversing in a very big way. That is what makes its shares so compelling right now.

What caused American Woodmark's fiscal 2021 to be so bad?

1. Lumber prices, their main raw material cost, tripled in a matter of months. That made their cost of goods sold (COGS) spike much higher.

2. AMWD was a victim of its own success. They had a nine-month backlog of orders to fulfill at the pre-lumber spike prices. They were forced to "eat" the raw material price increases on those pre-paid orders. That severely cut net profit margins and bottom-line results.

3. Earnings per share plunged 48.6%, from $6.40 to $3.29, in the fiscal year ended April 30, 2022.

4. Significant price increases were implemented to counteract the higher COGS.

Now the entire situation that caused earnings per share to drop last year are in full reverse mode.

1. Lumber prices are back to below where they sat when the price began ramping up.

2. AMWD still has a multi-month backlog of orders, but now at much higher price points due to the increases implemented last year.

3. Sales hit an all-time record in fiscal 2021 and appear headed for much better in fiscal 2022.

4. Fiscal 2022 and fiscal 2023 EPS are on pace to be or near or over, the old all-time high of $6.91 set back in fiscal 2018.

A glance at the quarterly revenue data for AMWD shows that sales have never been stronger. Fiscal first-quarter numbers came in 22.2% above the same quarter a year earlier.

Consumer orders for products have not be deterred/deferred by the higher prices. With lumber down again profit margins are plump. First-quarter profits surged by 144.3% year over year. Value Line sees the second quarter's coming in at 190% above last year's depressed EPS number. It also projects a 150% year-over-year increase in the third quarter.

In a world where profit growth is in short supply AMWD shares should attract lots of positive analyst comments as the next few reports are announced.

What is AMWD really worth?

From 2013 through 2021 its average price-to-earnings ran about 18.7-times, with quite a bit of aviation over the years. Its six "best buying opportunities (green-starred below) of the past decade saw rallies launched from multiples ranging from 5.5-times (at the exact Covid-bottom low) to 18.5-times (early in 2017).

From its Thursday quote of $47.65, AMWD now sells for only about 7.3-times this year's estimate. That's the most favorable valuation for new buyers since the Covid panic period.

Assume AMWD reverts back to a 16 multiple and the stock could easily be about $104 by the end of April 2023 when fiscal 2022 concludes. That implies potential upside of greater than 118%.

My goal price is not farfetched. Note above that AMWD topped out between $108.80 and $148.40 during each of the five calendar years from 2017 through 2021. It peaked near $90 in both 2015 and 2016 on EPS that were only about half what is now expected.

AMWD now sells for less than 1-time projected year-end book value. At its peaks in both 2017 and 2018 traders paid over 4-times book value to own it.

AMWD's price to cash flow is now the best since March 2020. Buyers back then saw their shares jump from south of $36 to north $108 in about a year.

Yahoo Finance sees AMWD's fiscal 2022 EPS reaching $6.75. That's 25 cents above Value Line's view. Assume a 17 multiple on its estimate and you come up with a 12-month target price of nearly $115.

Why should a stock growing earnings at such a fast pace be trading for such a low P/E? It seems only a question of time until analysts come around and start recommending the stock again.

Company officers have been large buyers of shares since September of last year. All together they committed almost $2.25 million of their money to purchases at an average cost of $53.44. The firm's CEO, who should best know its true worth, accounted for 12,000 of the 42,100 shares bought by insiders over the past year.

Option traders who want to nibble at the edges can sell April 21, 2023 expiration date naked puts at nice premiums.

Worst-case, forced purchase prices dropped to between $42.80 and $46.30 on the $50, $55 and $60 strike prices with AMWD at $47.65.

Owning AMWD near any of those "if exercised" prices would have been a winning trade about 95% of the time dating all the way back to Sept. 15, 2020 during the tail end of the Covid panic year.

There you have it. Bad news during fiscal 2021 based on lumber pricing has reversed. Price increases have stuck and sales are robust. EPS are surging higher. Insiders have been buyers at well above the current quote.

Today's valuation appears way too low based on all historical information.

Can you tell me why I'm wrong on any of this?

Do you have a stock that looks even better?

Leave your comments on the article or email me directly at [e-mail] with your ideas or criticism.

(Paul Price is a regular contributor to Real Money Pro, TheStreet's premium site for active traders, where he writes a daily column. Click here to learn more about this dynamic market service and receive columns like this each day from Price and many others as well as Doug Kass' Daily Diary.)

Note: Paul Price's next column will be published the week of October 3.

At the time of publication, Price was long AMWD shares, short AMWD puts.