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About H.B. Fuller

“Ba-deh, ba-deh, babay-de-be-de, ba-deh, ba-deh, babay-de-be-de, this heavy metal fatiiiiigue.”

That is a lyric to one of my favorite Allan Holdsworth songs and it basically has nothing to do with the primary subject matter of this here stock analysis article, other than the fact that it is the exact song that I listened to prior to sitting my butt down and cranking out this piece on, contrary to what one might believe, not H.B. Lesser, but prominent global glue manufacturer headquartered in Saint Paul, Minnesota, H.B. Fuller, named after its original founder by the name of Harvey B. Fuller.

Metal fatigue rocks so hard, by the way.

But anyways, as one could initially conclude given our brief mention of glue in the previous major paragraph, yes, H.B. Fuller is a leader in the broad and practical adhesives industry, as it is a gigantic supplier of materials that make objects of all sorts, shapes and sizes stick together, which, evidently so, there are a lot of industries, companies and individuals that rely heavily on such a property.

With this fact alone, it leads us to believe that this company’s revenues are going to be relatively boring and stable, which is far from being a bad thing (given that regardless of the overall state of the national and global economies, people and businesses will still need parts and pieces glued shut together), but just merely an observation we are interested in confirming (or not) in the context of its actual revenues, which we will undoubtedly delve into later within this article.

But back to customers, to name a few of those that this company serves, it is reported that some of H.B. Fuller’s customers include the likes of a company in H.B. Fuller’s neighborhood, multinational conglomerate 3M, along with other large domestic, national and international companies and operators such as consumer packaged goods (CPG) behemoth Procter & Gamble, General Electric, Johnson & Johnson, Ford Motor Company, Kimberly-Clark, Samsung, Mars (Incorporated, not the planet, at least yet), Unilever, Coca-Cola, Whirlpool, PepsiCo, Ecolab, Dow Chemical and believe me when I say many, many others, acting as a critical component of each and every one of this companies in providing the best, user-friendly and satisfactory end products they can offer.

In these introductory respects, we don’t see H.B. Fuller going out of business anytime soon, no way, as this short list of companies alone rely deeply on this company and its capabilities, many of which are likely proprietary to the company itself. With major accounts and clients such as these, this only further solidifies our opinion(s) regarding the company’s relative importance, subsequently leading us to believe that H.B. itself can hold its own pretty well during times of economic contraction given the sheer necessity of its products, by ultimate means of many of the aforementioned companies being ones that tend to do just fine during recessionary and/or inflationary periods.

Of course, H.B. Fuller doesn’t only serve large enterprise customers, however, this certainly acts as a solid, sort of blanketed hedge, all things considered.

That is, a company such as snack and beverage manufacturer, marketer and seller, PepsiCo, still tends to perform well during times of consumer budgets tightening, thus demand for H.B. Fuller’s capabilities and adhesive products will remain steady during times of economic weakness as well.

Ultimately, the company generates the vast majority of its revenues through the development and sale of adhesives, which, again, is broadly any sort of chemical or chemical-type make-up that enables two (or perhaps more) objects to stick together, and we thoroughly enjoy that this company has a well defined niche and market focus and has yet to greatly deviate from this niche.

I guess this company’s products have served their customers well and therefore, have stuck around.

That was a bad glue joke, for those who missed it.

But we won’t get too stuck on that.

Another one, by the way.

Let’s quit while we are so clearly ahead and dive into this company’s core financial figures and other relevant metrics and ratios so as to ultimately decide whether or not its stock (NYSE: FUL) is worth buying now and selling, well, never.

H.B. Fuller’s stock financials

In getting things kicked off with the glue giant of the day, H.B. Fuller is a $4.23 billion company with a corresponding share price of $78.24 along with a price-to-earnings (P/E) ratio of 29.31 while also issuing its shareholders an annual dividend of $0.82, all so far indicating to us that this company’s stock is trading a bit ahead of itself, that is, if our initial assumptions regarding this company experiencing little to no revenue growth in recent years given just how mature and large this glue and adhesives enterprise is are correct, however, if there is some revenue growth behind this company, it might just be worth paying a bit of a premium, on the basis of the commonly held fair value price-to-earnings benchmark of 20, as H.B.’s price-to-earnings ratio is around ten points higher than that of fair value.

All this to say, we will see.

Moving right along to the company’s balance sheet, H.B. Fuller’s executives are in charge of deploying and taking care of around $4.5 billion in terms of total assets as well as approximately $2.9 billion in terms of total liabilities, which, everything considered, is a good overall balance sheet breakdown, with, from our perspective, at least, its total assets weighing comfortably more than its cumulative liabilities.

Nothing really exciting to see here, folks, and that’s just fine for such a large, established and long-standing staple in the glue industry.

Regarding the condition of the company’s income statement, H.B.’s recent annual revenues (specifically measuring and referencing since 2018) have remained pretty much flat throughout the years, experiencing some slight softening during 2019 and 2020, which, of course, were somewhat extraordinary conditions due to COVID-19, likely leading to less companies and consumers needing certain goods and materials that had glue or adhesive as main components, thus the softening, however, when you look at the recent big picture, H.B. Fuller’s recent annual revenues have averaged out at about $3 billion each year, which is good in the sense that this company’s revenues have remained largely consistent on a year-over-year (YOY) basis, but it is a negative in the sense that Fuller’s stock (NYSE: FUL) is trading at a premium valuation relative to its actual, intrinsic worth, according to its previously outlined and stated price-to-earnings ratio.

Onto the company’s cash flow statement, there is hardly any surprise to be found on this spectrum, however, if there were any to be found, it would be that, at least compared to its previously stated corresponding annual revenues, H.B. Fuller’s net income and total cash from operations are, sure, positive and relatively consistent on a YOY basis, but quite small in comparison to its revenues, as, for instance, its net income has for the most part remained (again, referencing between 2018 and 2022) somewhere within the $100 million and $200 million range, which, compared to its billion-dollar annual revenues isn’t really all that much, not to also mention that its corresponding total cash from operations figures have been a bit higher, but still relatively low compared to what we had initially anticipated.

H.B. Fuller’s stock fundamentals

This naturally leads us to wet our beaks into this company’s prevailing profit margins, particularly on the front of its trailing twelve month (TTM) net profit margin, and more importantly, how it measures with that of the industry’s cumulative, respective average.

According to the figures displayed on TD Ameritrade’s platform, H.B. Fuller’s TTM net profit margin is indeed fairly small, both generally speaking but also comparably to the industry’s average, as the company’s TTM net profit margin sits at 4.03% to the industry’s respective average of a still small but slightly more impressive 6.22%, indicating that the adhesives industry isn’t all that filled with gushing cash flows and profits galore, which, to a degree, might make sense given all of the manufacturing inputs and raw goods costs and fluctuating expenditures involved in this company’s line of work, maintaining and consistently operating factories and other sorts of facilities while upholding plenty of distribution channels and networks, not to neglect the fact that H.B. Fuller operates at great scale, only amplifying its costs and relative expenses.

It makes sense, but it doesn’t mean it makes us thrilled, especially in the context of an apparently overvalued stock, once again, referencing the company’s aforementioned price-to-earnings ratio.

Regarding the company’s core TTM returns on both assets and investments, H.B. Fuller has once again found itself on the short end of the stick, likely, all things considered, due to its extensive operations and scaled, established business and brand, with, for example, the company’s TTM returns on assets and investment sitting below at 3.11% and 3.65%, respectively, to the industry’s respective averages of 3.42% and 7.68%.

This is a large, slow moving business and we surely know about those, again, for better or for worse.

Should you buy H.B. Fuller stock?

This company offers up a portfolio of largely recession resistant products, without a shadow of a doubt, serving an extremely wide range of industries, businesses and customers all across the globe.

However, the numbers spoke to us in a grumpy, severe tone of voice and told us to buy it and right now, given what we have seen through the aforementioned core financial figures, we don’t want to hear it and we aren’t buying what it is currently selling.

This company’s stock (NYSE: FUL) is overvalued relative to its present growth and more than likely the lack of prospects or major catalysts moving forward, its comparable TTM net profit margin and core return metrics and ratios are, well, not all that comparable after all and its cash flows seem a bit weak relative to its annualized revenues.

Until we see a large downside move in the company’s share price or some meaningful short, intermediate and/or long-term positive growth catalysts for H.B. Fuller, we aren’t interested in overpaying, thus, the “sell” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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