Jason Industries Inc (NASDAQ:JASN) may be cheap for a reason. The company has been on my radar for a while, and I’ve been consistently disappointed in its investment thesis. The biggest risks I see are around the sustainability of its future growth, the opportunity cost of investing in the stock accounting for the returns I could have gotten in other peers, and its cash-to-debt management. It’s crucial to understand if a company has a strong future based on its current operations and financial status.
Firstly, a quick intro on the company – Jason Industries, Inc., together with its subsidiaries, manufactures and sells finishing products, components, seating products, and acoustics in the United States and internationally. Since starting in 1985 in United States, the company has now grown to a market cap of US$85.13M.
With falling revenues (year-on-year growth rate of -8.07%) I decided to dig a bit deeper into whether this was a one-off occurrence. A consensus of US machinery analysts covering the stock illustrates the trend may continue into the foreseeable future. According to their forecast, JASN’s revenue level is estimated to decline by -4.37% by 2020. In addition to this, JASN is currently loss-making, delivering a recent bottom-line of -US$8.26M. With a declining top-line, moving towards positive earnings becomes harder, which is a concerning issue.
JASN’s financial status is a key element to determine whether or not it is a risky investment – a key aspect most investors overlook when they focus too much on growth. Two major red flags for JASN are its debt level exceeds equity on its balance sheet, and its cash from its core activities is only enough to cover a mere 7.49% of this large debt amount. Furthermore, its EBIT was not able to sufficiently cover its interest payment, with a cover of below 1x. This does lower my conviction around the sustainability of the business going forward. JASN has high near term liquidity, with short term assets (cash and other liquid assets) amply covering upcoming one-year liabilities. JASN has managed its cash well at a current level of US$48.89M. 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 JASN is US$3.11. With 27.37 million shares, that’s a US$85.13M market cap,
JASN is a fast-fail research for me. Good companies should have good financials to match, which isn’t the case here. Given investors have limited time to analyze a universe of stocks, JASN doesn’t make the cut for a deeper dive. 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.