Dynamic Materials ( BOOM) has been on a ferocious tear of late, up over 1,600% since November 2004. Yet only one analyst from a small firm covers this company, which dominates its somewhat unique space of explosion-clad metals. Dynamic Materials owns 60% of the clad-metal market share (excluding China). Earnings and sales are growing strongly. Due to the long-term planning process of the projects in which the company supplies materials, management has a fairly clear view of its business going forward. The stock is heavily shorted, and there's always the opportunity for a short squeeze on any good news. The shorts piled on as the shares began to rise in 2004 and grew to trade at high multiples, currently including a trailing P/E near 37 and a price-to-sales ratio of nearly 5. Late last year, over half of the float was sold short. The figure has come down since then, but is still at a sky-high 43%. This is the sort of bullish story I love for investors who are willing to take on some risk: a little-followed, heavily shorted stock with growing earnings and cash flow, a solid balance sheet and a near-term catalyst to get the stock going.
Blown Up Real Good
Dynamic Materials make its living by blowing stuff up. The process known as metal cladding involves placing a thin layer of expensive, corrosive-resistant metal on top of a lower-cost metal. An explosion between the two sheets causes them to bond, creating a corrosion-resistant metal sheet that mostly consists of a cheaper metal, such as carbon steel. The company's products are used in oil refineries and ships, to name a few areas. The upgrading of oil refineries will be a strong catalyst for growth, says Michael Shonstrom, an analyst with Emerging Growth Equities -- the lone sell-side analyst with coverage of Dynamic Materials; he rates the stock a buy. (Emerging Growth Equities does not have an investment-banking relationship with Dynamic Materials but does make a market in the stock. Shonstrom does not own any shares.)