Navistar International's (NYSE:NAV) wild run up this year has really surprised me. Having gained a staggering 70% year to date, the stock hit a new 52-week high last week. I wonder what's fueling the market's optimism; if you look properly, the company's challenges are far from over, and it hasn't turned in a profitable quarter in a year. Worse yet, Navistar's management has fallen short of its own expectations for two consecutive quarters.

Nav Truck

Navistar's stock may be trucking ahead, but the company isn't. Image source: Company website

I think the market is missing the big picture. If you listened to just some of the things that management said in Navistar's recent earnings call, you may be pausing to rethink whether the stock's worth your money yet.

"The turnaround has been slower than we expected."

A failed engine-emissions technology and soaring warranty claims last year cost Navistar billions of dollars, putting the company's survival in doubt. Since then, management has drawn up big plans, even ousting the former CEO, to give the company a fresh lease of life. More than a year into the restructuring efforts, however, Navistar's progress is anything but encouraging.

During the nine months ending July 31, Navistar's revenue slipped 16%year over year, while losses more than tripled to $744 million. Navistar generated only $34 million in cash from operations during the period -- that's a 90% decline year over year. Meanwhile, Navistar's long-term debt has gone up by 11% even as its free cash flow has run into negative numbers. In all probability, Navistar is going to end this financial year in the red as well.

Now, you certainly do not want to pay a penny for a company that's earning you nothing. Or you may, if you know that the company's hard days are about to end. Unfortunately, considering the headwinds Navistar faces in each of its business segments, you can't be confident of that.

"Our Class 8 market share continues to show improvement, but not as quickly as we had hoped."

Navistar's Trucks division makes up 70%of its total sales, so it will be the key to its revival. Navistar offers medium-duty (Class 4 through Class 6) and heavy-duty (Class 7 and Class 8) trucks, aside from military vehicles and buses. Of these, Class 8 happens to be the most critical segment in the truck business.

Navistar's share in the Class 8 truck market has shrunk to about 15% from 2009, when it was in the mid-20s. Navistar lost nearly 5 percentage points in market share during the first half of the year alone, suggesting that customers continue to flock to competitors' shops. Even as Navistar struggled, Daimler's Freightliner gained 8 percentage points in Class 8 market share while PACCAR's (NASDAQ:PCAR) Peterbilt and Kenilworth brands, combined, sold nearly double the number of trucks as Navistar International during the first half of the year.

I'm not sure whether Navistar will be able to achieve 18% market share by the end of the year as it aims to. At the same time, if the company doesn't quickly catch up on the Class 8 segment it may be too late to mend its ways.

"Our medium share situation, however, has become similar to what we experienced in Class 8."

Simply put, Navistar is having a hard time selling its medium-duty trucks. Until 2011, the company nearly dominated the medium-duty market with 41%market share. However, it managed just about 24% last quarter. Worse yet, Navistar lost a percentage point share in each of the last two quarters, indicating persistent weakness in the demand for its trucks. Meanwhile, rivals are zooming ahead.


PACCAR's  Kenworth and Peterbilt trucks are zooming ahead. Image source: PACCAR website

PACCAR, for instance, posted the biggest jump in sales in the industry for both Class 5 and 6 segments in July, even as International sales declined steeply. Medium-duty is even more challenging than the heavy-duty side, because, aside from PACCAR and Daimler, Navistar also has Ford (NYSE:F) to compete with.

Ford dominates the Class 5 segment with 58%market share, and its F-series pickups remain America's best-selling vehicle. Moreover, Navistar has little excitement to offer, unlike Ford, which recently launched Westport Innovations' (NASDAQ:WPRT) compressed natural gas systems in its F-450 and F-550 (Class 4 and Class 5, respectively) pickups. PACCAR, meanwhile, has also aggressively adopted Cummins-Westport engines for its vehicles, and its trucks make up more than 30%of all natural-gas powered vehicles on the road today. Navistar has made inroads into the natural-gas market, but at a snail's pace. Naturally, it is missing out on a huge opportunity.

Judging by the trend, it may take Navistar years to get back to the 40s mark again in the medium-duty segment. Management has indirectly acknowledged this -- It aims to just cross 30% market share by 2015.

"We have too much engine manufacturing capacity and we need to do something about that."

Wasted capacity is probably the last thing a struggling company should have to worry about. Unfortunately, a good portion of Navistar's engine-manufacturing capacity remains idle, as it is currently using Cummins' (NYSE:CMI) engines for several of its vehicles. Encouraged by a good response to its International ProStar trucks powered by Cummins' ISX 15 engine, Navistar will soon introduceCummins' ISB 6.7 liter engine to its medium-duty trucks and school buses.

While opting for Cummins' engines is the best Navistar could have done at the moment to salvage some market share, it may have long-term repercussions. Navistar is reportedly fitting its vehicles with Cummins engines on customer demand, which, ironically, raises doubts about how many customers would then want to buy Navistar's own engines when they are available. Navistar has started producing its own Maxxforce 13-liter engines, and is planning a medium-duty engine by early 2014, but a company can't aggressively grow if it has to depend on another for running its business.

The Foolish bottom line
Navistar needs to develop and market innovative products to get back in the game, but it can't do much if its coffers don't fill up. Add to that Navistar's debt of nearly $4 billion and unfunded pension liabilities of over $1 billion, and diving into Navistar looks like nothing but a gamble now.

Fool contributor Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends Cummins, Ford, and Paccar. The Motley Fool owns shares of Cummins, Ford, and Paccar. 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.