With gas prices still pretty steep, no one's expecting terribly good news from Motley Fool Hidden Gems watch list stock Arctic Cat (NASDAQ:ACAT) Tuesday. High gas prices not only drained holiday present buyers' wallets, but they also dissuaded people from buying gas-consuming toys for themselves. So when reaching for this Cat's fiscal Q2 2006 report, investors should be ready for a shock.
Wall Street Wisdom:
- General consensus. That's the analyst view, at least. Of the four learned fellows who follow the stock, each one is keeping a safe distance and a "hold" rating.
- Revenues. Second verse, same as the first. Analysts think sales will be essentially flat against last year's fiscal Q2.
- Earnings. Meanwhile, they believe the company incurred higher raw-materials costs to build its wares and probably needed to lower sales prices, just to keep the sales flatlined. Result: Profits are believed to have fallen more than 20% to $0.22 per share.
Margin watch:
High raw-materials costs, combined with pricing pressure, has left Arctic Cat's margins all wet and looking decidedly drowned-rat-like.
|
Margins |
6/04 |
9/04 |
12/04 |
3/05 |
6/05 |
9/05 |
|---|---|---|---|---|---|---|
|
Gross |
20.7% |
20.1% |
19.3% |
19.7% |
20.0% |
19.4% |
|
Op. |
6.5% |
6.0% |
5.2% |
5.8% |
5.8% |
5.5% |
|
Net |
4.5% |
4.2% |
3.6% |
4.1% |
4.1% |
3.9% |
What's that smell?
Buried in the kitty litter of last quarter's 15% sales rise were twin 25% spikes in inventories and accounts receivable. Let's hope tomorrow doesn't reveal a similar mess.
Key ratios:
Arctic Cat sports a P/E of 16 and a price-to-free cash flow ratio of 14. But back out its cash, and that second ratio transforms into a tempting enterprise value-to-free cash flow ratio of just under 12. If the company can disprove analyst projections of 6% long-term growth, investors at today's price could be rolling in catnip. If not, they may develop a sudden allergy to this stock.
Competitors:
Arctic Cat's main public competitor would be fellow ATV- and snowmobile-maker Polaris (NYSE:PII). Less directly, the firm also competes against Harley-Davidson (NYSE:HDI) and Honda (NYSE:HMC).
Arctic Cat is on the Hidden Gems watch list . For more cool-cat, underfollowed stock ideas, click here for a 30-day risk-free trial.
Fool contributor Rich Smith does not own shares of any company named above.
