We came across a bullish thesis on Ingevity Corporation (NGVT) on ValueInvesting subreddit page by Conscious_Lack_6923. In this article, we will summarize the bulls’ thesis on NGVT. Ingevity Corporation share was trading at $33.80 as of Oct 21st. NGVT’s forward P/E was 9.97 according to Yahoo Finance.
A laboratory technician pouring a specialty blend of industrial chemicals into a beaker.
Ingevity Corp has seen its stock price fall by 26% this year, hitting all-time lows, which may present a solid swing trade opportunity in this cyclical stock. The company operates in two main segments: performance materials and performance chemicals. The performance materials division specializes in chemicals for vapor emission control systems in automobiles, helping reduce CO2 emissions. The performance chemicals segment is divided further, with its construction division producing chemicals for pavement construction and its industrial specialties division manufacturing chemicals for paper and ink.
The performance chemicals segment has faced significant challenges, with EBITDA dropping by 80% year-over-year in Q2 2024, and margins shrinking from 15% to 5%. This decline was largely driven by weak margins in industrial specialties and the closure of two industrial facilities. Despite this, the pavement division remains dominant, and with the prospect of lower interest rates and increased home construction activity, Ingevity could see a rebound in the upcoming quarter. The correlation between increased construction spending and Ingevity’s revenue suggests a potential uplift in Q3 earnings, particularly in the pavement segment.
Ingevity’s debt situation remains a concern, with $1.4 billion in long-term debt and just $0.1 billion in cash. However, the company has taken steps to reduce capital expenditures by cutting lower-margin businesses and decreasing its debt by $1 billion over the trailing twelve months. The company posted a net income loss of $330 million in 2024 due to facility closures and a goodwill impairment charge. However, excluding these one-time factors, the adjusted net income stands at $50.9 million, demonstrating underlying financial stability.
In the performance materials division, EBITDA has increased by 28%, driven primarily by cost reductions. While the automobile industry has seen stagnant growth, this could change with fluctuations in interest rates, creating future demand for Ingevity’s products. Additionally, the price of sawdust, a key commodity for performance materials, has remained stable, keeping costs in check for this segment.
With a market cap of $1.26 billion and expected net income ranging between $100 million and $150 million, there’s potential for a 10% stock price increase following the upcoming earnings report, supported by favorable sector tailwinds and stable costs in key areas.
Ingevity Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held NGVT at the end of the second quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of NGVT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NGVT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.