Polypore International: Lithium batteries and more

It’s often been said that one of the biggest mistakes investors make is buying stocks in companies they don’t understand. The problem with that advice is that it can be rather limiting, confining individual investors to the stocks of grocery chains and certain popular coffee shops, while they overlook perfectly good companies that make things like specialized microporous membranes.

What, you ask?

It is not exactly a household word, but the specialized microporous membranes made by Charlotte, N.C.-based Polypore International Inc. (NYSE:PPO) are the sort of thing that no one seems to have heard of but may unknowingly come in contact with rather often. This contact could occur with lead acid batteries that run power tools and hybrid cars, filtration equipment that provides clean drinking water and a variety of health-care technologies such as blood dialysis equipment. The membranes essentially work to separate and filter, either to clean a substance such as water or to isolate the substances required to make products (such as advanced batteries) work properly.

A leading supplier of these omnipresent membranes, Polypore went public last July, and its stock has been on a pretty choppy ride since then. On their first day of trading, the shares opened at $19, below an expected range of $20 and $22, and then swung widely between $12.15 and $26 per share. They’ve been on the rise lately and closed Monday at $24.29 per share.

While there are a number of reasons for Polypore’s stock volatility (including its multiple restructurings, its somewhat complex ownership prior to going public, and its more than $1 billion in debt at the time of its IPO) the company’s fundamental outlook seems strong.

Four analysts who follow the company are projecting net income will rise to $0.95 per share this year and to $1.15 per share in 2009, compared with $0.44 per share next year. Three analysts who track revenue see sales rising to $604.1 million this . . .

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