Is This Truck Trailer Manufacturer a Good Buy?

Anh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I am always interested in large price swings, either up or down. These fluctuations create investment opportunities that we can take advantage of. As long as we can determine that it is safe to initiate or sell a position in a particular stock for a particular price, we will be fine. Recently, the sudden rise of Wabash National Corporation (NYSE: WNC) caught my attention. Its stock jumped nearly 23.5%, from $6.31 to $7.79 per share in a single day. After the jump, its stock was in the middle of its historical 52-week range of $11.55 and $5.65. Can Wabash rise above its 52-week high? Or, it will fall below its 52-week low? A deeper look into its business fundamentals will be helpful to answer those questions.

Wabash can be considered a highly volatile stock. In the past 5 years, Wabash’s shareholders have experienced a wild ride. The stock was as low as $0.54 in July 2009, and it was as high as $12.43 in December 2010. Indeed, the stock has a beta of 3.18, indicating that it is 318% more volatile than the average market. 

<img src="/media/images/user_14219/screen-shot-2012-11-02-at-120141-pm_large.png" />

The recent 23.5% jump was mainly due to a strong Q3 earnings announcement. Its net sales were nearly $406 million, a 20.6% year-over-year growth compared to its $336.4 million sales in the same quarter last year. Its net income was $18.4 million, much higher than $1 million in Q3 2011. Its diluted EPS for the quarter was $0.27. However, the large growth in Q3 this year was due to the fact that Wabash consolidated full quarter results of Walker Group, which it acquired in May 2012. Out of $406 million net sales in the quarter, $96 million was from Walker Group acquisition. Organically, the sales would be $310 million, if we don’t include Walker Group’s sales. So the company has achieved this quarter top line’s growth via acquisition, not organic growth. 

Wabash employed a lot of debt for its operation. As of September 2012, Wabash recorded $195.7 million in stockholders’ equity whereas its long-term debt was $414.4 million. Out of $843 million in total assets, the largest item was inventories, of nearly $232 million. At the current price of $7.79 per share, the total market capitalization is $532.74 million and the enterprise value is $846.10 million. Its TTM EPS is $0.48, including the updated third quarter results. So its TTM P/E is 16.2x. 

Three main competitors of Wabash are Trinity Industries (NYSE: TRN), Utility Trailer Manufacturing and Great Dane Limited Partnership. However, the latter two companies are not listed yet, so I can only compare Wabash with Trinity Industries.

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p><strong>WNC</strong></p> </td> <td> <p><strong>TRN</strong></p> </td> </tr> <tr> <td> <p><strong>Net margin (%)</strong></p> </td> <td> <p>2.4</p> </td> <td> <p>6.3</p> </td> </tr> <tr> <td> <p><strong>ROIC (%)</strong></p> </td> <td> <p>3.8</p> </td> <td> <p>4.9</p> </td> </tr> <tr> <td> <p><strong>D/E</strong></p> </td> <td> <p>2.5</p> </td> <td> <p>1.5</p> </td> </tr> <tr> <td> <p><strong>P/E</strong></p> </td> <td> <p>16.2</p> </td> <td> <p>10.4</p> </td> </tr> <tr> <td> <p><strong>Dividend yield</strong></p> </td> <td> <p>N/A</p> </td> <td> <p>1.3</p> </td> </tr> </tbody> </table>

Comparing the two, it is quite easy for investors to conclude that Trinity is a better buy. Wabash, even with the impressive growth in the third quarter, still has a lower net margin and return on invested capital than Trinity’s. Wabash has stopped paying dividends since the beginning of 2009, whereas Trinity is paying investors a quarterly dividend of 11 cents, or a 1.3% dividend yield. Trinity can manage to have higher net margin and return on capital while employing a lower leverage level.

My Foolish Take

If I had to choose between the two companies, I would choose Trinity due to its higher margin, higher return on capital, and lower debt ratio. In addition, the company is paying dividends to shareholders. For Wabash, I would restrain from initiating a position in a stock, even after its impressive Q3 earnings results and its 23.5% surge in the stock price. 

hoangquocanh has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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