Last week, Simulations Plus (SLP) reported another very strong quarter, and the stock leapt to a new all-time. Better than that: Wall Street is still clueless about this amazing growth story. I’m glad I was able to tell you about this before crowds got in. This is exactly what Stealth Stock investing is all about.
Look at the gains we’ve had:
In this week’s Stealth Stock Riches, I’ll go over the earnings report from Simulations Plus, and I’ll also cover the report from WD-40 (WDFC), but first I want to cover the Q2 earnings season, which just kicked off.
Q2 Earnings Season Preview
Second-quarter earnings season has officially begun. Over the next few weeks, we’ll learn how well corporate America fared during the second three months of the year.
This will be an interesting earnings season, because it came during one of the worst economic downturns on record. We saw some evidence of a recession during the Q1 earnings season, but it will be much broader now.
For Q2, Wall Street expects the S&P 500 to report earnings of $22.37 per share. That’s the index-adjusted figure, and it’s about half of what Wall Street had been expecting on January 1, before the novel coronavirus showed up.
Investors understand that Q2 was mostly a lost cause. For example, Delta Airlines (DAL) recently reported a staggering quarterly loss of $5.7 billion. Their daily burn rate declined from $100 million to $27 million. Things are also tough at Wells Fargo (WFC), which recently had to slash its dividend.
Outside of the actual earnings report, what will be interesting to hear is any guidance that companies have for the rest of the year. Companies usually have a good clue as to how their customers and vendors are behaving.
One of the benefits of Stealth Stock Riches is that our stocks are largely, if not completely, ignored by Wall Street. This means we don’t have to play the typical earnings game like other companies do. Still, earnings season is important for us in that we get to peer under the hood and see how well business is going. So let’s get to our two earnings reports.
Earnings from WD-40 and Simulations Plus
On July 9, we got earnings reports from Simulations Plus and WD-40 for the reporting quarter that ended in May.
Let’s start with Simulations Plus (SLP), because this stock has been a rock star for us. If you’re not familiar with the company, it makes software that lets drug companies simulate tests of their products in the virtual world before using any human or animal test subjects—a big cost saver for drug companies.
Simulations Plus’s technology streamlines the R&D process by making it faster and more efficient. Not only is this cost effective, but it also helps drug companies deal with time-consuming regulatory hurdles. Business has been booming.
For its fiscal Q3, net revenues rose 23.8% and gross profit increased 26.5%. Simulations Plus earned 16 cents per share for the quarter but that includes a four-cent charge due to the Lixoft acquisition, so in practical terms, the stock made 20 cents per share. I’m very pleased with that result.
I’m also optimistic for the future. CEO Shawn O’Conner said: “Our backlog remains healthy, and we are encouraged by the pickup of new software license closures and consulting contracts at the end of the quarter. We expect double-digit, year-over-year revenue growth in the fiscal fourth quarter, despite the impact of seasonality on a sequential basis.”
Simulations Plus also filed what’s known as a “shelf registration.” That allows to the company to sell shares to the public, but not immediately; this allows the company to raise money on their timetable. They can sell at any point over a certain time frame, but shares under shelf registrations are usually sold in about two years.
On Friday, shares of Simulations Plus ticked up as much as 7.6% to touch a new all-time high of $68.40 per share. That’s an amazing run since we first added the stock less than six months ago. Simulations Plus remains an excellent buy.
The other earnings report came from WD-40. Most every homeowner is familiar with WD-40, the lubricant spray with the instantly recognizable yellow-and-blue label. What I like about this company is that its product satisfies a basic need. It really isn’t more complicated than that.
The company’s offering has grown to include many other applications for its namesake product. Consumers love it and Wall Street ignores it.
For its fiscal Q3, WD-40 saw sales fall by 14% to $98.2 million. Net income fell 20% to $14.5 million. In terms of earnings-per-share, that works out to $1.06, which is down from $1.30 for the same period one year ago.
Frankly, this was a tough quarter for WD-40, but it held up pretty well considering the environment. I was especially pleased to see gross margin come in at 54%.
CEO Garry Ridge said: “Though the global health crisis is not over yet, I do believe that we have maneuvered through the immediate crisis very well. We have always had a very clear strategy with very clear targets enabled by an enviable culture. What this crisis has required us to do is pause, reset, and become even more laser-focused on how we will achieve our growth aspirations.”
The stock has pulled back after the earnings report, and it’s stabilized since then. Don’t let these numbers rattle you. WD-40 is still a very solid long-term buy.
Stealth Stock Updates
Raven Industries (RAVN) said it received a $4.8 million from the Federal Emergency Management Agency (FEMA). The contract includes delivery of medical supplies to various state and local organizations for COVID-19-related use. Raven expects revenue from this contract to be mostly realized in the second and third quarters of this fiscal year.
Stepan (SCL) is due to report earnings on April 21. There are only three analysts who follow Stepan. The consensus is for $1.20 per share. Three months ago, Stepan reported Q1 earnings of $1.04 per share, which was 26 cents more than estimates.
Our Stealth Stock Scorecard
Here’s our Stealth Stock Scorecard.
Investors Title
Market Cap: $0.2 billion
Quarterly Dividend: $0.44
Analyst Coverage: 0
Next Earnings Report: August
Chase Corporation
Market Cap: $0.9 billion
Quarterly Dividend: $0.80 (annual)
Analyst Coverage: 0
Next Earnings Report: July
Raven Industries
Market Cap: $0.8 billion
Quarterly Dividend: $0.13
Analyst Coverage: 3
Next Earnings Report: August
WD-40 (WDFC)
Market Cap: $2.7 billion
Quarterly Dividend: $0.67
Analyst Coverage: 2
Next Earnings Report: October
Gorman-Rupp (GRC)
Market Cap: $0.8 billion
Quarterly Dividend: $0.145
Analyst Coverage: 1
Next Earnings Report: July
Middlesex Water (MSEX)
Market Cap: $1.1 billion
Quarterly Dividend: $0.25625
Analyst Coverage: 3
Next Earnings Report: August
McGrath RentCorp (MGRC)
Market Cap: $1.3 billion
Quarterly Dividend: $0.42
Analyst Coverage: 2
Next Earnings Report: July
Safety Insurance Group (SAFT)
Market Cap: $1.2 billion
Quarterly Dividend: $0.90
Analyst Coverage: 2
Next Earnings Report: August
Simulations Plus (SLP)
Market Cap: $1.1 billion
Quarterly Dividend: $0.06
Analyst Coverage: 2
Next Earnings Report: October
MGE Energy (MGEE)
Market Cap: $2.3 billion
Quarterly Dividend: $0.3525
Analyst Coverage: 0
Next Earnings Report: August
U.S. Lime & Minerals (USLM)
Market Cap: $0.5 billion
Quarterly Dividend: $0.16
Analyst Coverage: 0
Next Earnings Report: July
Stepan (SCL)
Market Cap: $2.2 billion
Quarterly Dividend: $0.275
Analyst Coverage: 3
Next Earnings Report: July 22
Rollins (ROL)
Market Cap: $14.7 billion
Quarterly Dividend: $0.12
Analyst Coverage: 4
Next Earnings Report: July
Parsons (PSN)
Market Cap: $3.3 billion
Quarterly Dividend: none
Analyst Coverage: 7
Next Earnings Report: August
I’ll have more for you in next week’s Stealth Stock Riches. – Eddy
