The Chase for the Nextel
With NASCAR's Cup banking the corner at high speed, Action Performance
The loose wing nut from the quarter unfortunately is characteristic of the type of year this company has had. For 2004, Action Performance's revenues came in at $344.2 million -- a decline of 18.1% when excluding the contributions from the Funline acquisition. The company's net income for the year crosses the line at an engine-sputtering $500,000, or $0.03 per share -- severely off its 2003 earnings mark of $24.2 million, or $1.33 per share.
From a valuation standpoint, things don't appear any better. With cash of $12.6 million and long-term debt of $11.9 million, Action Performance has an enterprise value (EV) of $197.2 million. For 2004, the company produced $5.9 million in structural free cash flow (SFCF), giving it an EV/SFCF of 33. There is little attractive about this high-RPM valuation for a company whose growth is stuck in low gear.
With the black flag waving, it's time for Action Performance to make a pit stop. For 2005, the company will need to figure out a way to draft behind the blistering performance of NASCAR. Until the company proves itself, be a spectator rather than a speculator.
Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.