• The chart shows the performance of industrial manufacturing firm Hillenbrand Inc, over the last 3 years
  • Since the stock’s trough in March of 2020, it has risen over 150%
  • We have been proponents of investing in companies that make what you need, not what you want.
  • Behavioral errors often give investors the feeling that they “missed” a stock after it has risen
  • KCR believes that Hillenbrand lies at the intersection of two powerful themes we have highlighted: the opportunity in small-cap value stocks and finding growth at a reasonable price

Hillenbrand’s Stock Chart: Absolute Return

To see why our proprietary ranking model likes the stock click here. Below the HI stock chart, find some simple reasons why, despite its recent run, the company may be a solid long-term investment.

Hillenbrand Absolute Performance over the Last Three Years

HI’s Stock Price Relative to the Market: The Case for Investigation

The chart below shows the same chart as the one above. The only difference? The chart below shows HI’s price performance relative to the Russell 2500 over the last three years. Despite the massive run since March 2020, it has lagged both the R2V and the R25 badly.

Hillenbrand Relative Performance to the R2500 over the Last Three Years

How badly has the stock underperformed? The chart below shows that if the R2500 just stayed flat, HI would have to rise 26% to catch up with the broad index.

Hillenbrand Absolute Performance vs R2500 1

Our models seek to exploit the behavioral errors that turn investors into their own worst enemies. As we explained in our “Enron Hat” piece introducing KCR’s “Glamor Stock Index,” we believe that low-quality stocks propelled by narratives but lacking fundamental merit have created uncommon opportunities like HI today.

The data below is our Single Company Heat Map for HI. For all numbers, higher is better. The basics:

  • Valuation Quintile 5: HI is relatively cheap on E/P and S/EV. HI has an 11% FCF/EV which is in the 89th percentile of the Small & Mid Cap Universe.
  • Balance Sheet Quintile 5: HI has a solid score on balance sheet quality, and they have increased their dividend steadily over the last 5 years and have a healthy buyback yield.
  • Earnings Quality 5: the stock has high-quality earnings with terrific scores on change in inventory relative to sales. The company also has a solid ROE (21%) and ROA (6%).

Hillenbrand Single Company Heat Map

We have written a second piece with a brief Hillenbrand stock analysis that walks through their terrific Investor Relations material. The firm engages in three primary lines of business. While the development, manufacture, and sale of process solutions molding technology and engineered industrial equipment may sound obtuse, it is a reasonably straightforward story in our view.

If you are interested in another free write-up like this that highlights a stock that offers growth at a reasonable price, take a peek at our piece on Mohawk Industries.

  1. As a reminder for our Financial Advisors: our models are available on a continuous basis, and most have been in production for over a decade.  If you are looking for simple, concentrated, low turnover, and tax efficient model portfolios we would like to talk with you.  KCR also offers a wide range of easy-to-use but sophisticated tools.  Our toolkits can help identify mispriced stocks with the best and worst risk/reward characteristics, estimate a stock’s duration and warn you when a company is engaging in low-quality accounting. Over the last 12 years, KCR has built and offers time-tested and class-leading products built by experienced and proven money managers for fixed to low prices.
  2. Kailash Capital’s sister company, L2 Asset Management, runs market neutral, long/short, large-cap, and mid-cap long-only portfolios with a value and quality bias.  L2 employs a highly disciplined investment process characterized by moderate concentration, low turnover, high tax efficiency, and low fees. While nobody can predict the future, we believe the recent resurgence in risk-adjusted returns seen across all products is the beginning of what may be a long period where speculation is punished, and prudence and patience rewarded.

Disclaimer

The information, data, analyses, and opinions presented herein (a) do not constitute investment advice, (b) are provided solely for informational purposes and therefore are not, individually or collectively, an offer to buy or sell a security, (c) are not warranted to be correct, complete or accurate, and (d) are subject to change without notice. Kailash Capital, LLC and its affiliates (collectively, “Kailash Capital”) shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information herein may not be reproduced or retransmitted in any manner without the prior written consent of Kailash Capital. In preparing the information, data, analyses, and opinions presented herein, Kailash Capital has obtained data, statistics, and information from sources it believes to be reliable. Kailash Capital, however, does not perform an audit or seeks independent verification of any of the data, statistics, and information it receives. Kailash Capital and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your tax, legal, and accounting advisors before engaging in any transaction. © 2021 Kailash Capital, LLC – All rights reserved.

Nothing herein shall limit or restrict the right of affiliates of Kailash Capital, LLC to perform investment management or advisory services for any other persons or entities. Furthermore, nothing herein shall limit or restrict affiliates of Kailash Capital, LLC from buying, selling or trading securities or other investments for their own accounts or for the accounts of their clients. Affiliates of Kailash Capital, LLC may at any time have, acquire, increase, decrease or dispose of the securities or other investments referenced in this publication. Kailash Capital, LLC shall have no obligation to recommend securities or investments in this publication as result of its affiliates’ investment activities for their own accounts or for the accounts of their clients.

February 18, 2022 |

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