ASV Holdings Inc (NASDAQ:ASV)’s outlook is one of buoyant sentiment as it continues to post exciting top-line revenue growth. Its share price has been relatively constant over the last three months; most recently US$7.25 at the time of posting. I’ve been researching ASV for a while, and am impressed with the business led by Mr. Andrew Rooke. In this article, I’ve written a brief commentary on the key things you’d need to believe in order to be long ASV.
Firstly, a quick intro on the company – ASV Holdings, Inc. designs and manufactures compact construction equipment in North America, Australia, and New Zealand. Founded in 1983, it currently operates in United States at a market cap of US$71.16M.
The company is growing incredibly fast, with a year-on-year revenue growth of 18.82% over the past financial year . Since 2013, revenue has grown 3.44%, parallel with larger capital expenditure, which most recently reached US$548.00K.
Minimizing the downside is arguably more important than maximizing the upside. Generally the first check to meet is financial health – a strong indicator of an investment’s risk. ASV Holdings’s balance sheet is robust, with high levels of cash generated from its core operating activities relative to 0.28x debt. Generally, anything above a fifth of debt is considered prudent because the company is making enough money to pay down its debt principal over time. However, one red flag is that its EBIT was not able to sufficiently cover its interest payment, with a cover of 1.62x. This is a short-term issue, and not the be-all-and-end-all for ASV. Overall, the company shows the ability to manage its capital requirements well, reducing my concerns around the sustainability of the business going forward. ASV has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities, as well as long-term commitments. ASV has managed its cash well at a current level of US$3.00K. However, more than a fifth of its total assets are physical assets and inventory, which means that in the worst case scenario, such as a downturn or bankruptcy, a significant portion of assets will be hard to liquidate and redistribute back to investors.
The current share price for ASV is US$7.25. With 9.82 million shares, that’s a US$71.16M market cap – quite low for a business that has a 5-year free cash flow cumulative average growth rate (CAGR) of 3.44% (source: analyst consensus). With an upcoming 2018 free cash flow figure of US$7.46M, the target price for ASV is US$8.94. This means the stock is currently trading at a meaningful 18.94% discount. But, comparing ASV’s current share price to its peers based on its industry and earnings level, it’s overvalued by 61.14%, with a PE ratio of 38.71x vs. the industry average of 24.02x.
ASV is a stock with outstanding fundamental characteristics. I like the company because of the growth story, the possibility that it is yet to be factored into the share price, and the strong capital management. For all the charts illustrating this analysis, take a look at the Simply Wall St platform, which is where I’ve taken my data from.