Did Titan Machinery's Drop Create an Opportunity?

I am amazed at how strangely markets react sometimes. Despite a rise in first-quarter revenue and profit, shares of agriculture and construction retailer Titan Machinery (Nasdaq: TITN  ) were hammered. Just because the company barely missed Street estimates on the bottom line, I personally don't see any problem with the company's performance. It simply looks like the markets were waiting for a reason to take some profits.

Setting records
Looking ahead, the company even kept its full-year outlook untouched. Profits remained almost flat year on year, but revenue grew 32.5% from the year-ago period thanks to higher same-store sales for both agriculture and construction equipment. Gross margins were maintained at a level of over 16%.

The important thing to note is that Titan is set for a record 2012. In its last financial year, the company topped its own guidance, nearly doubling its net profit and clocking a solid 51.6% jump in its top line. For this year, Titan is expecting a minimum 17% rise in revenue and 23% rise in net profits compared to last year.

The tailwinds
I don't see any reason why Titan shouldn't to do well in the forthcoming quarters. The planting season has started with a bang this year. Prices of essential crops like corn are bouncing back, and agriculture players are brimming with optimism.

The world's largest agriculture equipment maker, Deere (NYSE: DE  ) , reported an 11% increase in its first-quarter revenue and is expecting agricultural-equipment sales to rise 15% this year. AGCO (NYSE: AGCO  ) had a record first quarter, with net sales rising 26.5% from the year-ago quarter. Strong industry fundamentals even prompted the company to increase its full-year outlook. With agricultural-equipment sales accounting for more than 80% of total revenue, Titan can bet on a good year ahead.

The construction market has also shown signs of picking up. Caterpillar's (NYSE: CAT  ) sales in its construction industries division climbed 13% during the first quarter, and it is expecting the "industry to improve moving forward."

The Foolish bottom line
Titan continues to grow its business. Since February this year, it has acquired several dealerships, most of which cater to agricultural equipment. Through these acquisitions, Titan is actually adding more Case IH and New Holland dealerships to its portfolio, both of which are renowned brands of CNH Global (NYSE: CNH  ) .

Good numbers and a growing business place Titan in a strong position. As I said earlier, investors probably took it as an opportunity to book some profits in a stock that had gained a whopping 42% year to date (that is, before they shed 21% post-results). I wouldn't be surprised if Titan's stock recovers soon, as it looks like a solid bet in the long run. Keep a tab on all its news and analysis by adding Titan Machinery to your personalized stock watchlist. Click here to add it.

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Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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