Shipbuilder Austal Limited (ASX: ASB) is bucking today's downtrend with the stock retesting its two-week high this morning on the back of a new contract win.
Shares in Austal jumped 2.2% to $1.83 and I think it is only a matter of time before it breaches the $2 mark.
My optimism isn't so much driven by the latest contract news that is worth $US34 million ($44.5 million) as the amount isn't particularly material to Austal, which is tipped to deliver $1.37 billion in revenue for 2014-15.
But the contract is good news as it continues to prove-up Austal's ability to secure non-military vessel projects as today's news is for the construction of a 70-metre fast crew boat for Caspian Marine Services Limited of Azerbaijan.
Austal's experience building fast moving battle ships for the US navy is translating nicely into the commercial world and this will help diversify its revenue stream – not that there is any doubt about the US Navy's commitment to build more Littoral Combat Ships (LCSs).
Austal is building some of the LCSs and this is essentially the reason for its close to 60% share price surge over the past year.
I think there is more upside for Austal as the stars are aligning nicely for the shipbuilder as the US Navy projects, and its growing commercial shipbuilding operations will see its earnings per share increase by double-digits over the next two years.
What's more, the weakening Australian dollar is providing a second tailwind for Austal as it translates its US dollar earnings into Australian dollars.
In spite of the stock's stellar rise, it is still looking cheap. Austal is trading on a 2015-16 consensus price-earnings multiple of 12.7x when I believe fair value is around 16x given its growth profile and transparency over its pipeline of work.
This implies a further 25% upside for the share price on top of its 2% to 3% dividend yield.
Austal is a "buy" in my book and there are other great investment opportunities you should also be looking at. Sign up for free below to see one of the great ideas the experts at the Motley Fool have uncovered for you.
