Shares of tire manufacturer Titan International Inc (NYSE:TWI) jumped 39% in August, according to data provided by S&P Global Market Intelligence, after the company reported second quarter earnings that may show a bottom in demand.
Sales fell 12% to $330.2 million and Titan International swung from a profit of $9.4 million to a loss of $3.8 million. But gross profit margin increased 10 basis points to 13.7% as cost reductions started to take hold.
What really got investors excited is management saying that big tire demand is at a trough and will start to turn higher in the back half of the year and in 2017. If that happens, Titan International's lower cost structure should lead to strong margin and earnings growth, potentially leading to a lot of upside for investors.
The big move in Titan International was partly due to how far the stock had fallen. The company was worth about $125 million at its low, which implied that investors were losing faith that the company could simply survive.
If demand does turn higher over the next year, we could see a strong increase in net income, which would be a big payoff for investors. But the company has missed expectations by a wide margin before, so don't bet too much on a recovery -- there's not a lot of evidence one is here just yet.
Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Titan International. 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.