Just read the 2023 AIF, MD&A, Financial Statements
Just thinking more about the stock and what the next 12 months is likely to look like.
I think the stock likely sold off due to the anticipation of a decline in US$ / CDN$ exchange rate that isn't going to happen. In fact, I think this is a tailwind vs a headwind now. It was noted clearly in the public disclosure that this strong US$ rate added to sales and gross margin. It looks like this is going to continue into the foreseeable future.
I think another concern for the stock as was the real estate market. They make quite a number of electrical enclosures for the commercial and residental real estate market. While interest rate in Canada and the US have remained higher (on a relative short term basis) fear of further rate hikes has disappated.
Higher for longer seems to be the direction of rate but the important is that rates will remain high but stable. I think this rate stabilitiy overlayed with a longer-term view that rates will eventually decline is allowing investors to return to the house market.
The are urgent demands in Canada / US for more housing. Growing imigration and populations has lead to a housing shortage. The combination of all of these factors provides a strong macro environment for one of Hammonds more significant business lines.
I am beginning to believe that Hammond is a significant beneficiary of the growth in AI and cloud services. I believe that through their rack system sales (that they have won award for innovation).
Hammond will continue to benefit from the massive wave of AI and cloud computing infrastrastructure build out that continue. Data centers development is at an all time high. There is an urgent rush to build capacity to accommodate the insatable demand for AI and cloud services. Racks and power systems are among the core foundation of this infrastructure.
The US Semicondutor strategic spending will also drive data center growth. According to the AIF at least 60% of sales go to the US.
"Hammond's sales are spread broadly among many markets and industries. In 2022
approximately 60% (2022 - 62%) of sales were in the United States, 34% (2022 - 33%)"
Ove the next 5 years (2023-2028) data center spending in the US execpted to grow by 7.5 billion from 23.29 billion to 30.79
https://finance.yahoo.com/news/united-states-data-center-construction-123500099.html
With many of Hammonds costs in Canadian dollars and sales in US$ combined with the strong macro environment for data centers and housing, I think I understand much better the potenital for Hammond over the next 12-24 months and why the stock should continue to perform well.
With a trailing P/E of 6.75, once could reasonable expect the stock to have the potential to double in the next 12 months.
Please like the posts if you find it valueable. It lets me know that I should continue to post throughts like this.