US Lime (USLM). An unfollowed name with market beating returns.

The author has no position in USLM. This is meant to spur discussion of an underdiscussed company.

What do they do?

US Lime is a limestone producer. They quarry and process lime for use in building roads and buildings. They also have a small natural gas royalty business, but it is a negligible part of the business.

Business

US Lme has customers throughout the Southwest and great plains. LImestone, being very heavy, is expensive to ship over long distances. The company states that it generally goes less than 400 miles from the quarry that produced it. Also, limestone is a finite resource. There are only so many quarries that exist, so producers tend to have a regional monopoly. Morningstar gives the materials companies they cover a narrow moat rating, and I agree.

They do pay a small dividend, and does a small buyback program, however most of their capital will be reinvested into the business.

Balance sheet

One great thing about US lime is their balance sheet. They have essentially no debt, and approximately $122 million in cash. It trades at 20x earnings and 10x EV/EBITDA. These are roughly in line with the industry, though having a debt free balance sheet is not.

Management

The CEO, Timothy Byrne, has been in the position since 2000, and has been with the company since 1990. He owns about $4 million in stock, which helps to align his interests with shareholders. During his time with the company the stock has appreciated over 3000%!

Risks

The building materials industry can be highly cyclical. USLM does operate in one of the fastest growing areas of the country, which helps. It is also noted that Texas has a law that a certain percentage of its oil revenue that is designated for road construction. This benefits USLM.

Also, This stock is very thinly traded, often having about 2,000 shares a day change hands. If you want a highly liquid stock, this is not it.

Conclusions

USLM is probably trading in the range of fairly valued. It trades at similar multiples to its peers. Running A few earnings and FCF projections I usually get a fair value between $160 and $150 per share.

USLM has found a way to continually grow its share price over time. While not trading at a discount, it is an intriguing long term hold.