Dynamic Materials Corp (BOOM)

Interesting that The Motley Fool investor community, since mid-March 2008 (when it traded for $45/share), rated BOOM 5-stars. Since then, it went pretty steadily into the dumper, bottoming at $6.07. I bought on the way down, though higher than my CAPS position shows. Can BOOM return to $45 on its way back to $65 by August 2010?

I not only think that will happen. I think the ascent will start soon. I’m no pumper. I have my own skin in the game, irrespective of CAPS scores. But recovery prospects are based on real world hypotheses: (1) USD will drop against other currencies; (2) more major contract wins will be announced; and (3) competitors are evaporating.

Regarding currencies, BOOM takes major hits when the US dollar appreciates. Recently this accounted for a 10.5% reduction in sales revenue, with 65% of sales coming from overseas. Think of the leverage if the USD flatlines or, as a lot of speculators think, begins a slow-motion collapse against paper from governments doing less “quantitative easing”. Some folks buy gold, but BOOM’s boom hasn’t even started and the potential to leverage its financial statements may be significantly greater.

Regarding new business, President & CEO Yvon Cariou recently said, "We believe the current flow of quote requests, coupled with the extensive list of large infrastructure projects we are tracking, is likely an accurate gauge of strong future demand. Of the three large prospective projects we discussed after the close of our first quarter, two have been awarded to DMC. One was related to a significant North American alternative energy project and the second was tied to an overseas hydrometallurgy operation. The third, a Middle Eastern oil and gas project, was awarded to a roll bond manufacturer based on price.” These new contract awards show the industry and geographic diversity of BOOM’s customers. Here are businesses BOOM serves:

· Chemical Processing
· Petroleum Refining
· Hydrometallurgy
· Aluminum Smelting
· Shipbuilding
· Electrochemical
· Oil & Gas
· Power Generation
· Cryogenic Processing
· Pulp & Paper
· Air conditioning & Chillers
· Metal Production
· Ground Based Power
· Aircraft Engines

Anyone who knows metallurgy and mechanical engineering knows that BOOM's customers need the resultant clad metal to achieve proper product performance.

Still, there are no competitors in BOOM’s lines of business with the critical mass to take on big infrastructure projects. Note that the competitor who won the third quote, did so "based on price". So BOOM is not sacrifice margin for volume. And, like the one successfully awarded the third project, BOOM can do roll bonding. But not everyone can do explosion welding. Google “explosion welding” and you get some very small players, none of whom have stock that’s publicly traded. In addition to having purchased patented technology to give it the edge, BOOM also bought up most of their emerging competitors.

So, here are my share price guidelines for the near term:

Under $25.00 -- Strong Buy
$25.00 - $32.70 -- Buy
$32.71 - $40.40 -- Hold
Over $40.40 -- Weak Hold/Sell

Dave