I suspect that even the canny investors who bought shares in timber merchant James Latham in the aftermath of the credit crisis did not expect them to rise by 560% in six years.

James LathamThis firm’s success has made it one of the most successful and most highly-ranked stocks in the Stockopedia universe. Latham boasts a StockRank of 97 and was one of Stockopedia founder Ed Croft’s top 10 stocks for 2015.

In this article, I’m going to look more closely at the financial characteristics that have made this stock such a successful investment and ask whether it still has upside potential.

A family firm

James Latham started trading as a timber merchant in 1757, importing hardwoods into Liverpool.

It has since become one of the UK’s importers and distributors of wood-based sheet materials, timber and flooring to the building trade. Today, Latham has 10 sites spread across the UK.

Since its foundation, the firm has remained under family control.

The five members of the family whose shareholdings are disclosed on the company website own 17.5% of the company’s shares. Four of these family members currently sit on the board of this £138m AIM-listed firm. Chairman Peter Latham has worked for the firm for 41 years and been on the board since 1983.

Many esteemed investors such as Lord John Lee like to back family-owned firms because the management’s interests are usually closely aligned with those of shareholders. Sustainable growth and a progressive dividend are often priorities, although it’s always worth watching out for excessive remuneration (which doesn’t seem to be a problem here).

Is there any value left?

After delivering a capital return of 315% in five years, you might not expect shares in James Latham to be very good value.

It’s certainly true that Latham’s ValueRank of 69 is the lowest of its ranks, but the shares’ valuation is underpinned by strong free cash flow generation.

Latham currently trades on a trailing P/E of 14.4, or 17.0 if you use the company’s own adjusted figure, which excludes an exceptional £1.8m pension credit. This looks demanding but is expected to fall to 16 for the 2014/15 financial year, which ended on 31 March.

Latham actually looks less expensive when you measure cash flow. According to Stockopedia, the firm’s…

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