National Presto Industries (NPK)

Appraisal

Comments

National Presto Industries is the company that makes the Salad Shooter. The stock used to be much more attractive - triple digit returns on PPE and net liquidity in excess of $25/share. While this company isn't a candidate for the scrap heap by any means, note that for the past few years, its return on PPE has been falling, and the company has been burning through its liquid assets. National Presto Industries has been buying back stock and entering the defense business and the diaper business, and the entry costs have been consuming lots of cash, so the heavy investment may pay off in the future.

Don't blame management for the falling net liquidity. The massive liquidity mired National Presto Industries in a firestorm of controversy and even got the company in trouble with the SEC for failing to register as an "investment company". Because of the SEC investigations, there have been auditing issues. Well, what do you expect when Wall Street is so squeaky clean that the SEC runs out of cases of embezzlement, insider trading, Ponzi schemes, and other ethical breaches? Thanks to subprime mortgages, alt-A mortgages, the housing bubble, the credit bubble, and the derivatives bubble, we don't have to worry that our financial system is being run too conservatively.

Due to the falling net liquidity and return on PPE (which has been lowering intrinsic value), I'm avoiding this stock for now even though I side with management over the SEC (something I never, ever expected to think). It's possible that National Presto's defense and diaper businesses will bring the company back to its glory days, but I'm not betting on that given the competition in these industries. A few years of increasing intrinsic value and tenure with the same auditor would reassure me.