Today we have a moderately speculative idea with a conservative touch.: take shares of forklift manufacturer Hyster-Yale Materials Handling (NYSE: HY), to capitalize on the growth in demand for the company's products.
Growth potential and duration: 14% for 14 months; 50% for 5 years; 109% for 10 years. Everything excluding dividends.
Why stocks can go up: this business has prospects.
How do we act: we take shares now by 47,37 $.
When creating the material, sources were used, inaccessible to users from the Russian Federation. Hopefully, you know, what to do.
Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..
And what about the author's predictions
Research, for example this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would perform better than people, but alas, they work worse.
Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.
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Investment editorial office
What the company makes money on
HY designs and manufactures forklifts, and also provides services in this area. According to the annual report, the company's revenue is divided as follows:
- Forklifts — 76%.
- Spare parts — 14%.
- Services, leasing of equipment — 5%.
- Bolzoni. Parts for forklifts — 5%.
What does the company's products look like?, can be viewed in her presentation.
The list of end users of the company's products is very wide: customers are in all industries. If you look at the company's forklift sales in North America, then the picture comes out next:
- Retail and long-life products — 34%.
- Food & Drink — 18%.
- Industry - 28%.
- Logistics - 20%.
Revenue by country and region:
- USA - 58,34%.
- Europe, Middle East and Africa - 26,19%.
- Other countries and regions — 15,47%.
Arguments in favor of the company
Cheap, need to take! Price HY almost in 4 times lower than its annual revenue. And the shares fell in price in 2 since February amid investor concerns about the company's logistics costs.. The capitalization of HY is only 796.8 million dollars, so stocks can easily bounce simply because of investor speculation.
Oh, HY, Mark. It is quite possible to expect growth in HY sales against the background of the restructuring of the US logistics sector. Companies in all industries will invest more in the development of their warehouses and the creation of storage systems for large volumes of goods.. Part of the growth of e-commerce also plays a role here., but the main driver of HY business growth will be the situation with constant logistical failures. Now companies need to stock up on goods in large quantities., because on time and inexpensively will not give a lift.
Considering, that the U.S. will set records in retail trade this season of November and December holidays, we can expect an increase in investment in warehouse equipment here and now. Most likely, only the season 2021-2022 companies will not be limited and will actively develop their storage capacity for at least a few more years - with positive consequences for HY.
ESG. The company has a division of Nuvera Fuel Cells, which is engaged in the design and production of power supplies for hydrogen-powered transport. It is monstrously unprofitable.: the final margin there is −656% of revenue, — and gives direction only 0,13% company revenue. But hydrogen is considered the "ideologically correct" direction among investors., tuned to a progressive agenda. Let's count, that it will add attractiveness to HY stocks. She also has 32% revenue accounts for electric forklifts. In sum, "environmental efforts" may well attract ethically concerned investors to HY shares., and this will be an additional plus in the karma of HY when accessing credits.
Wrecked. The company pays 1,29 $ dividend per share per year, what gives 2,72% annual. It's almost in 2 times higher than the average for S&P 500 and in itself could attract a lot of fans of working money to the shares.. And this can greatly affect the value of HY shares..
Can buy. Taking into account all these advantages, the company may well be bought by someone larger. In its niche in terms of sales, HY ranks sixth in the world - it may well buy, eg, Toyota. P / E HY is not very arrogant — 31, so I don't think so, that its cost will cause great doubts among the potential buyer.
What can get in the way
Honey and chill. 44% revenues of the company give forklifts with internal combustion engines. In the long run, we can expect an increase in investor pressure on companies., producing or buying such equipment. Sure, HY has a rag, to shake in front of the nose of the green: hydrogen fuel and electric forklifts. But it's also possible., that the green-twisted corporate sector will begin to abandon conventional technology en masse., which will negatively affect HY reporting.
Beautiful far away. Now it is difficult to assess the prospects and progress of warehouse automation, but there is a very high probability, that over time forklifts, managed by humans, give way to automated forklifts. maybe, and HY itself will begin to develop robot forklifts, but it will take a lot of time and money.
There are two classes... The company has, just like unprofitable IT startups, there are two classes of shares - A and B: Class B gives 10 votes per share - against the vote per share of type A. Most of the Class B shares belong to the family of descendants of the company's founder., which thus belongs to 72% company votes. These people may well make decisions., which will contradict the interests of minority shareholders. for example, descendants of the founder of HY may refuse to sell the company.
Double-edged sword. The company will suffer from logistical difficulties, rise in price of raw materials and cost of labor. Its total margin is very small — 0,91% from proceeds. So it's very likely., that the company will have to lock in a loss this quarter — or that profits will be worse than investors' expectations..
Accounting. The company has a very large amount of debts: 1,361 billion dollars, of which during the year will need to repay 863.1 million. Money at her disposal is not very much: 87,5 million in accounts and 470.4 million counterparty debts, so that, most likely, debt burden will increase.
The company spends $ 21.4 million a year on dividends - approximately 71,3% of its profits over the past 12 months. Given the seasonal difficulties mentioned above and simply the amount of debt., payouts can be cut, and this, in turn, will lead to a fall in shares. Also, a large debt will cause distrust of some investors on the eve of raising rates: taking into account the upcoming rise in the price of loans, investors can bypass companies with large debts.
What is the bottom line
We take shares now by 47,37 $. And then there are several options.:
- wait, when will the shares be worth 54 $. That's well below their all-time highs., and thinking, what we will reach in the next 14 months;
- wait for growth to 71 $. Of this level we, probably, we can achieve in the next 5 years;
- wait for the stock to rise to February highs in 99 $. Here it is better to count on 10 years.
But still look at the news section of the company's website.: in order to have time to reset the shares on the St. Petersburg Stock Exchange in case of cancellation or reduction of dividends before that, how Russian investors will react to this news.