Titan Machinery (TITN): Titanic Risks

by Sonya Colberg, Senior Editor - 5/30/2017 7:03:58 AM

Titan Machinery’s (TITN) challenges are exerting titanic forces against the North Dakota agriculture and construction equipment company.

The company’s struggles are evident in the lower sales and tepid guidance reported in its pre-Memorial Day financial report.

It’s a good thing management doesn’t have to pitch Titan to the entrepreneurs on the TV show Shark Tank. We can imagine Mark Cuban squinting and scowling as he asks Titan how last quarter went…

*Another Miss

Last quarter wasn’t so hot. Neither was the previous one, Titan folks would have to say.

Though analysts consistently expect losses, quarter after quarter after quarter, in its pre-holiday report Titan actually missed estimates once again.

Analysts thought the company would lose 16 cents per share. Bad enough, of course, but not as bad as what Titan actually lost … 19 cents.

That’s nearly 22% worse than everyone thought.

In the past 6 quarters, Titan’s losses have been worse than the losses analysts anticipated.

(Source: Etrade)

 

* “The Money. You’re Not Making Any”

And since Titan lost money - US sales dropped 17% versus the prior year and overall revenue dropped 7% (with 14 more store closures expected amid restructuring cost savings that “will be less than previously expected”) – the stock can’t even be evaluated in the common method of trailing Price-to-Earnings.

So, turning to Price-to-Cash Flow, Titan is jaw-droppingly expensive:

Consistently making no money is, well, really unfortunate. So unfortunate that entrepreneur Kevin O’Leary might reiterate a blunt comment made on Shark Tank:

“The money. You’re not making any…  Do you think any investor up here wants to join you in that madness? Money’s binary.  Either you make it or you lose it.”

Titan is losing money and losing ground to the competition. While the company lost $5.9 million just last quarter … most rivals made money:

 

             Profitability

(Source: Thomson Reuters)

With the significant difference in profitability, we’ve got to look closer at what Titan management is doing. We find management offers stockholders far less for their money than most rivals offer:

 

Management Effectiveness (trailing 12 months)

 Return on Assets                      -1.86%

  Return on Equity                     -4.94%

 Return on Investment Capital -3.54%     

 

(Source: Etrade, TheStreetSweeper)

In fact, Titan reinvests its earnings less efficiently than 79% of all competitors.

Considering earnings, fundamentals, relative valuation, risk, price momentum and insider trading, Titan rates a very low average score: 

  (Source: Thomson Reuters)

* “Succulent Margins?” Not Here

Shark Tank’s Mr. Wonderful might ask just about now:

“Tell me about the succulent margins…”

But he’d be mighty disappointed. The company’s margins have long been worrisome… Lower than the industry average for each of the last five years.

The margins remain burdensome:

Profitability (trailing 12 months)

     Gross Margin           17.54%

     Operating Margin     -0.55%

   

(Sources: Etrade, TheStreetSweeper)

That gross margin is lower than 83% of the other companies in construction and agriculture machinery.  

So the company has been left with having to aggressively use debt. Titan has had to resort to more aggressive debt than 74% of rivals.

Financial Strength (most recent quarter)

(Source: Etrade, TheStreetSweeper)

Finally, here’s a chart comparing Titan with a couple of rivals and the industry overall:

(Sources: Yahoo, Thomson Reuters, TheStreetSweeper)

*Conclusion

We feel about Titan much like Daymond John apparently felt about a recent investment pitched to the Sharks.

“If I invested my money in this I’d sleep like a baby,” Mr. John said. “I’d wake up every two hours crying and asking my mommy, ‘Where’s my money?’ I’m out.”

Titan is struggling and shouldn’t be trading anywhere even close to this valuation. TheStreetSweeper expects a significant drop for Titan – a fade of about 30% near-term.

 

* Important Disclosure: The owners of TheStreetSweeper hold a short position in TITN and stand to profit on any future declines in the stock price.

* Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to streetsweepereditor@yahoo.com.

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