Cliff Note #88
Activist sees potential for over 100% return in this boring stock through efficiencies or a 30% to 60% gain from the sale of the company. We agree.
This one is pretty interesting. The company is a boring, profitable $1B transportation equipment company. This Cliff Note idea is actually not a microcap (it’s actually a small-cap).
One of the things I am excited about with the MSM Quality Index is that it’s diversified. This allows us to, on occasion, move outside the lines of the general intent of the index by moving up the market-cap food chain or even sometimes taking some speculative risk.
Despite being the leader in its industry, this stock trades at a P/E of 10, which is significantly below industry peers.
We think there’s a good possibility that the P/E could materially expand, as the company’s 3-year plan, intended to result in its manufacturing process and supply chain being more efficient while improving customer service is about to inflect.
Furthermore, our $6.00 EPS estimate, which would lead to nice growth for 2025, does not take into account further efficiencies, as well as the benefits the company is going to gain due to an acquisition the company made in 2023 to improve the supply chain and bring some manufacturing capabilities in-house.
We simply think that margins will improve, which should help the company’s price-to-earnings ratio start trending towards its peers, which are anywhere from 50% to 3 times higher than the company’s current ratio.
On top of all this, activist involvement is ensuring that the company enacts shareholder friendly initiatives. On that note, on the back of an open activist letter, the Board recently approved a nice share buyback program. The company also pays a dividend.
Part of the activist’s opinion that the stock could trade at least 100% higher is due to its belief that efficiencies could be put in place to help boost margins. Well, we agree, but we also think some efficiencies have already taken hold, as evidenced by the company’s improvements in its operating leverage highlighted in its last two quarterly reports.