Finding winners in unexpected places is one of the thrills of investing.

When sentiment in a sector is pointing one way… I love finding stocks that are going the other way…

Like this week’s Stock of the Week.

While the global construction sector is feeling pessimistic – what with inflation, higher interest rates and a cost of living crisis – I’ve found a company that’s been on an absolute rip since 2020.

It’s a specialty glass producer that has been growing profits at a 50% annual rate, yet the stock is trading at a dirt-cheap forecast P/E of just 11.5.

Plus… it’s got a solid CROCI – cash return on capital invested – score and excellent growth forecasts.

This is one you won’t want to miss.

Get all the details on the stock – including the ticker – in this week’s video.

Click on the image below to watch it.

Transcript

How to Find Winning CROCI Stocks

Hello friends. Stock of the Week time already. Doesn’t time go fast.

I’m Alpesh Patel. I’m a hedge fund CEO. We have a private equity arm as well in our business, and I’ve got an interesting business for you today.

One company caught my attention this week. My team sends me a short list of companies. They go through about 10,000, look at which ones are interesting, which ones have good financials, and then we narrow it down.

It’s Tecnoglass (TGLS). It’s a holding company which works in the design, manufacturing, distribution, marketing and installation of architectural glass windows and associated aluminum – that’s what you guys call it – aluminum products for the global commercial and residential construction market.

And you might say, “Wait a minute, rising interest rates, cost of living rises. You’re talking to me about the construction market? You must be crazy.”

Well, when there’s opportunities, there’s opportunities. It’s actually headquartered in Colombia, and it’s what they call a vertically integrated state-of-the-art manufacturing complex. They’ve got access to the Americas, the Caribbean and the Pacific. So pretty large area. They are the largest glass fabricator serving the U.S. and the No. 1 architectural glass transformation company in Latin America.

So you’ve got a Latin America play going on here as well.

It has a market cap of over $2 billion. Revenues have been growing at an average of over 14% per annum recently. And profits have been growing, or earnings have been growing, at an average annual rate of over 50% recently as well. It pays a dividend – not that it needs to with those numbers, but it does, and that’s good as well.

So on my Growth-Value-Income rating, which is my proprietary algorithm which measures stocks by their valuation, their revenue and profit growth, their cash flow, their momentum, all of these factors, it’s got a 9 out of 10. Anything with a 7 or higher meets my minimum criteria, and this does that. So that’s good.

CROCI, or cash return on capital invested – you can read here why that’s important – was invented by Deutsche Bank and is used by Goldman Sachs for their wealthiest clients. This company’s got a CROCI of 14.5%. So that meets my minimum criteria as well. That’s good. It’s generating good cash on the capital that it invests. It’s been going up nicely as well.

Okay, what else have we got in terms of data for this? Turnover is going in the right direction. Borrowing has been coming down, and that’s good as well. Assets have been increasing.

The forecast P/E ratio multiple is only 11.5. So you take the current share price, and you take the forecasted earnings, and you’ve got a multiple of 11.5. And that’s pretty cheap.

Return on capital employed is high. Return on equity – in other words, the capital that the company has – is high. That’s great. Okay. Turnover is forecast to grow. Earnings are forecast to grow. Pretax profits are forecast to grow.

So obviously the market seems to like this company. They’re buying into its shares, but it’s forecast P/E ratio is still low. In other words, they can’t seem to get enough of it, and there’s more room to grow. Okay. That seems to be the conclusion I come to.

It’s been on a rip since COVID, and thereafter. There was a bit of a pause as there was with just about every stock last year, but it’s gone back up since then. And I expect that upward trend to just gradually continue with the company.

As I said, the P/E ratio looks cheap. If there’s a sort of a fly in the ointment – let’s put it that way – it could be that on a discounted cash flow basis, it’s about 11% overvalued. But discounted cash flow is not guaranteed. Well, nothing’s guaranteed in investing. It’s not guaranteed to mean it’s overpriced, but that’s the only thing which is a slight marker on this one.

But other than that, good numbers.

Hopefully this is also educational for you. You get a sort of a “tip of the iceberg” of the kinds of things we look at and good insight.

So thank you very much for listening up, Manward family, and of course anybody from – well, everybody from – my GVI Investor research service as well.

Thank you very much, and I’ll speak to you shortly. Thank you.