external headwinds mask a great growth story, page-21

I have to update my models for the 2016 figures as well over the next week so i've been looking at this thread. There is some good analysis here. I'll answer the the ROE question and where I see it going.

Firstly yes your right historical ROE has been poor but improving dramatically. While a lot of the posters and people that follow the stock point out the shift to the newer products which are (slightly) higher profit margin, I think the main reason is plain old operating leverage coupled with (in recent years) investment into a sales team that is designed to sell much more than they actually selling today (investment for future growth). When you have a good look at the stock you will see that gross profit % has been largely flat over the past 7 years:

2015 57.49%
2014 58.59%
2013 55.03%
2012 52.69%
2011 55.54%
2010 61.54%
2009 58.09%
2008 56.86%

However net profit % is a different story:

2015 10.32%
2014 10.6%
2013 9.37%
2012 4.79%
2011 -0.15%
2010 5.02%
2009 5.53%
2008 2.3%

This has the obvious effect on ROE and ROA:

ROE
2015 12.2%
2014 13.3%
2013 11.2%
2012 6.38%
2011 -0.7%
2010 6.55%
2009 8.15%
2008 3.24%

From an operating leverage point of view you can see they have produced this from sales of

2015 $68,655
2014 $65,330
2013 $56,607
2012 $56,402
2011 $54,849
2010 $53,093
2009 $57,424
2008 $49,039


I see sales this year were $74,077 so some of the growth invested for is coming through. From an operating leverage point of view I think this is very early in the story. From my notes (i'll find out where I got this from) they think they can get to $100mill in the short term 3-5 years and have the capacity to get sales to $120-130million out of the existing factory with only minor investment.