Investidea: LCI Industries, because they go home

Инвестидея: LCI Industries, потому что дома едут

Today we have a moderately speculative idea.: take shares of the manufacturer of components for mobile homes LCI Industries (NYSE: LCII), to make money on the rebound of these undervalued stocks.

Growth potential and validity: 14,5% behind 12 months excluding dividends; 30% behind 2 years excluding dividends; 9% per annum during 10 years including dividends.

Why stocks can go up: because the company looks undervalued.

How do we act: take now 122,21 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. We hope, Do you know, what to do.

This investment idea was proposed by reader Alex Freeman in the comments to Thor Industries.

No guarantees

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 we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like 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 show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea 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

LCI makes components for leisure equipment – mainly mobile homes. According to the annual report, The company's revenue is divided into two segments.

OEM orders — 81%. These are components for recreational equipment: chassis, window, furniture and so on. Components for trailers for travel and "trailer" houses are given 51,32% revenue of the whole company, 5,79% – houses on wheels; 42,89% - Related industries like buses, towing transport, boats, modular houses, transport for cargo transportation. Segment operating margin — 8,4% from its proceeds.

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Spare parts — 19%. This is all, what is needed for repair and replacement of components of equipment, which is made from components supplied by the company. Segment operating margin — 11,3% from its proceeds.

USA gives companies 91,62%, and 8.38% are other, unnamed countries.

Инвестидея: LCI Industries, потому что дома едут

Инвестидея: LCI Industries, потому что дома едут

Arguments in favor of the company

It will not be enough. The company's shares have fallen sharply since December.: from 159 to 122,21 $. You can speculate, certainly, about that, what do they cost now "how much do you need", but you don't really need to do that.: over the past two years, the stock has grown by only 10%, although profit, and revenue showed higher growth 50% for the same period. So we have every right to expect a rebound..

Achievements. The company's latest report showed an increase in operating margin since 8,1 to 9,4%. In my opinion, this is an achievement against the backdrop of supply problems, tormenting as specifically LCI, as well as other manufacturing plants around the world. This is a very good sign.: maybe, the company and will not be able to do everything 100% eliminate inflation risks, but, at least, she's been able to neutralize them so far..

Инвестидея: LCI Industries, потому что дома едут

Being on Wheels. As with Winnebago and Thor, the company will benefit from the growth in demand for transport for travel and life. Actually, these companies are its customers.

Can buy. The company is very cheap.: P / E — 11, P / S — 0,7 and capitalization of about 3 billion. Given this and all of the above., it is extremely likely that someone larger will buy it.

Dividends. The company pays 3,6 $ per share per year, which gives approximately 2,95% per annum. It's no longer a shameful return., which may well help to pump up quotes due to the influx of fans of "divas". Considering, that the company spends on dividends approximately 32% from profit, as well as a positive business environment, the size of payments can increase by one and a half times, to please shareholders, especially taking into account the average indicators of quotations.

What can get in the way

Concentration. A number of large clients of the company gives it an excessive amount of revenue.: Thor accounts for 23%, at Berkshire Hathaway — 20%. A review of relationships with these companies or simply a disruption in supply could have a negative impact on LCI's reporting..

"But milk, fortunately..." Well-known events in Europe have greatly increased the cost of many materials and added logistical problems – which means, at least in the next six months, LCI reporting will suffer, if it fails to transfer the increase in costs to its customers.

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Accounting. Now the company has 2.195 billion debts, of which 627.216 million must be repaid within a year. She doesn't have a lot of money at her disposal.: 62,896 million in accounts plus 319.782 million counterparty debts. So dividends can be cut – especially if the company implements a large-scale investment program.. And if the payments are cut, then the stock will fall.

"I'll Kill You, boatman". The company makes components for, relatively speaking, "luxury" – optional goods. So,, seems to be, as in the event of the onset of recessions, its sales should fall. "It seems" – because now recessions have become man-made and do not affect the consumption of the rich.: the company's wild sales growth occurred during the pandemic era.

So that, probably, everything at LCI will be fine, although quarantine may have a negative impact on its production performance. But still, the news about the beginning of the recession will have an extremely unfavorable effect on the LCI quotes., because investors will think "the old-fashioned way", that the company's sales will fall.

But, Considering, that income growth for the "rich" is slowing down, consumption of the company's products and its customers may fall. Or maybe not fall - it's just a theory. Poorer rich Americans, seem to be, will not soon: they are hit the least by quarantines, and the availability of loans in their case will always be high..

What's the bottom line?

We take shares now by 122,21 $. And then there are several options for the development of events.:

  1. wait for growth until 140 $. It's a modest goal, considering all the positive points, — we may well wait for it to be achieved in the following 12 Months;
  2. wait for the stock to return to 159 $. Here it is better to count on two years of waiting.;
  3. hold shares 10 years and receive dividends, as the company grows. Although, probably, for such a period of time it will be bought.

Well, do not forget to look at the news section on the company's website: if news about the reduction of payments appear before the opening of the US market, then, may be, will be able to sell these shares on the "SPb-Exchange" earlier, how they fall.

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