Paving the Way to Success: The Cyclical Nature of the Capital Equipment Industry
Saj Karsan submits:
In general, makers of capital equipment see highly cyclical demand from their customers, as the will/ability of companies to finance expensive purchases during recessions disappears. Further, adding to the already-pressured earnings situation for companies that manufacture heavy-duty capital goods, is the fact that a large component of their costs are fixed, at least in the short-term. But often, this combination of negative factors in the short-term can result in a beaten down stock price, where upside potential is strong and downside risk is low in the long-term.
As an example, consider Gencor (GENC), a manufacturer of heavy-duty equipment for the highway construction industry. As one might expect, Gencor’s revenue has taken a hit, and the fixed-cost nature of its business has resulted in several consecutive quarterly losses. But while the company has lost under $3 million in the last five quarters combined, it holds cash of $65 million against no debt, and it trades for just $68 million.
Investing, Long Term Investment, stock market | admin March 3, 2010
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