Welcome to our latest Foolish feature, the Daily Double. Each market day, we'll be presenting a stock that has doubled in the past six months. For more information on this column, please read "What is the Daily Double."
ASV Inc.
(Nasdaq: ASVI)
Phone: 218-327-3434
Price (3/17/97): $21 3/4
HOW DID IT DOUBLE?
A small company in a no-frills business builds a better mousetrap -- in this case, a tractor -- and is discovered by Investor's Business Daily. And, oh yeah, earnings doubled in 1996 and are expected to triple in 1997.
Thanks to IBD's May 22, 1996 article, ASV shares went from $7 a share to $14 in a matter of weeks before dropping back to the high $9 range by early September. Third quarter earnings doubled as the company's Posi-Truck tractor registered strong sales (up 57% over the first nine months of the year). IBD returned to the story in late November, and the shares cleared a path toward $20 a share.
After the year-end earnings report in late January, ASV Inc. soared to $26. Both for the fourth quarter and the year, sales jumped 50% and EPS plowed ahead 100%, despite a better than 20% increase in the number of shares outstanding.
BUSINESS DESCRIPTION
Based in Grand Rapids, Minnesota, ASV designs, manufactures, and sells rubber track-driven, all-season vehicles that provide good traction on muddy or snowy terrain. The company's Track Truck is an off-road utility vehicle appropriate for grooming outdoor trails used for skiing, hiking, or biking. The company's hot Posi-Track vehicle is a fancy, lightweight tractor used in the construction, landscaping, and agricultural industries. ASV recently announced the 125-HD, a low-maintenance $75,000 hybrid that combines features of these two vehicles, but also includes the comforts of a fully enclosed cab.
The real push here is coming from the Posi-Track vehicle, which is capturing some of the construction and agricultural business (the so-called "skid-steer" market), and is also opening up new niches where typical tractors are just too heavy, such as landscaping and wildlife-game management. As a low ground-pressure tractor, the Posi-Track also works well in vineyards, where roots can be easily damaged. Some analysts put this small-to-medium size tractor market at $1 billion annually.
In October, the company took out a loan for $1.8 million to expand its plant. The facility should be completed by summer. The company also raised $5 million in a private placement of debentures that are convertible anytime at $11 per share. The company will use the money to increase inventory and to meet working capital needs. The stock split 3-for-2 on January 17th. It also moved from Nasdaq's SmallCap Market to the National Market on February 26th.
FINANCIAL FACTS
Income Statement 12-month sales: $12.3 million 12-month income: $0.9 million 12-month EPS: $0.18 Profit margin: 7.3% Market Cap: $115.9 million* (*Does not include $5 million in convertible debentures) Balance Sheet Cash: $0.4 million Current Assets: $6.3 million Current Liabilities:$1.2 million Long-term Debt: $0.7 million (As of the end of the third quarter) Ratios Price-to-earnings: 121 Price-to-sales: 9.4
HOW COULD YOU HAVE FOUND THIS DOUBLE?
Well, an IBD reader could have gotten the scoop in time for a triple. The question is, could a sensible reader have imagined this triple taking place? At the time, ASV had disclosed that first quarter earnings had doubled to four cents a share as revenues increased 63% to $2.35 million, but this was a mild slowdown from the 117% earnings growth and 72% revenue growth seen in FY95. Even at $7 a share, the company was trading at a PE around 46. Who would have thought the stock could trade at a PE well over 100?
WHERE TO FROM HERE?
With just one analyst covering this stock (and that, apparently, the underwriter) one has to say, who knows. On the face of it, ASV is a real bargain despite the insane PE ratio. That's because our bullish analyst sees earnings tripling this year, to $0.56 per share. That kind of growth would give these shares a tasty PEG of 0.57. Using estimated long-term annualized growth of 65%, we get a fair value of $36.
Still, one has to wonder if a little ol' tractor company can really maneuver at such a pace. Starting small, it's got a long way to grow, but growth can be difficult to manage. And if the market for the Posi-Track is so enormous, what about competitors entering the field? Lots of questions stand between here and that long-term growth rate. Yet, operating margins should continue to improve due to volume efficiencies, meaning that earnings could outpace revenues, even with added expenses for sales and R&D.
Both longs and shorts might want to place this microcap in the homework pile.
-Louis Corrigan (RgeSeymour)
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
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