It has been out of bankruptcy for about two years now, and the earnings results haven't changed much. Yesterday's second-quarter report showed a balance sheet with $710 million in long-term debt and an income statement with a loss of $0.20 per share. There was a 20% increase in international sales, however, and the stock, trading at only 39% of its book value, shot up more than 10%.
Hayes could be doing much better, though. SuperiorIndustries
But as Warren Buffett puts it: "When a management with a reputation for brilliance tackles a business with a reputation for poor economics, it is the reputation of the business that stays intact." In auto parts manufacturing, global competitors can operate with a cheaper labor base and at a lower tax rate. This makes for severe pricing competition. As Superior's management intimated in the most recent earnings report, the company's two largest customers, Ford
Even with its solid financial position, Superior is going to have a tough time rewarding shareholders in the years to come. Hayes, on the other hand, with a pile of high-interest debt and a history of poor earnings, will have a hard time surviving. Management must reverse the trend of sub-par performance and find ways to compete effectively against pricing competition. Otherwise, this stock could crash and burn.
Looking for an undervalued stock with a lot less risk? Check out the Motley Fool Inside Value newsletter, where Philip Durell brings you two valuable picks every month. Click herefor a free trial.
Fool contributor Matt Thurmond doesn't own shares of any company mentioned in this article.