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Category: Stock Market and Art's Way Manufacturing
Date: 7 October 2019 Stock Price: $2.10 We take a look at the 2nd quarter earnings report of their 2019 fiscal year of Art's Way Manufacturing, a company that manufacturers agricultural machinery.
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About Art's Way Manufacturing
Art's Way Manufacturing is an American corporation primarily engaged in the manufacturing of agricultural machinery. Other operational segments include land prep equipment, pressurized vessels, modular buildings and machine tools. Art's Way is listed on the NASDAQ Stock Exchange under the symbol ARTW.
Overview of Art's Way Manufacturing's latest earnings report
- Net sales: $5.747 million (up from $5.294 million for the same quarter of the previous year)
- Net sales increased by 8.6% over the last 12 months
- Cost of sales: $4.788 million (up from $4.187 million for the same quarter of the previous year)
- Cost of sales increased 14.4%by over the last 12 months
- Net loss: -$356 thousand (up from a loss of -$659 thousand for the same quarter of the previous year)
- Diluted loss per share: -$0.08 (up from a loss of -$0.16 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 4.299 million (up from 4.213 million for the same quarter of the previous year)
- Cash and cash equivalents: $4 401
- Cash and cash equivalents per share: $0.102
- Cash and cash equivalents makes up 4.87% of Art Way's market capital
- Cash and cash equivalents makes up 0.02% of Art Way's total assets
- With such a low cash balance one has to wonder about their cash flows and whether they will need to take on debt or issue stock in order to top up their cash reserves. Neither of these will benefit stockholders
- Accounts receivable: $2.667 million
- Accounts receivable makes up 12.48% of Art Way's total assets
- Inventories: $10.105 million
- Inventories makes up 47.3% of Art Way's total assets
- Stockholders equity in Art Way's: $12.183 million
- Stockholders equity per share: $2.83
- So Art Way's is trading at 0.74 times its stockholders equity which is outside the expected range of between 2 and 4 which most firms ten to trade at. Firms tend to trade at parity or above their stockholders equity. The reason for this is of the company sells all their assets, pays all liabilities and distributes what is left to stockholders the stockholders equity per share gives an indication what each stockholder would get. The issue here is the fact that Mr Market knows that either debt will have to be taken on to push of their cash reserves or equity needs to be issued and both of these options will dilute the stockholders equity per share of Art Way's
Art's Way Manufacturing's management commentary on the results
ARMSTRONG, IOWA, July 10, 2019 – Art’s Way Manufacturing Co., Inc. (NASDAQ: ARTW), a diversified manufacturer and distributor of equipment serving agricultural, research and steel cutting needs, announces its financial results for the second quarter and year to date fiscal 2019.
Chairman of the Art’s Way Board of Directors, Marc H. McConnell reports, “Our results for the second quarter reflect the challenges that continue to plague the farm equipment industry. While consolidated revenue increased in the quarter due to improving circumstances at our Art’s Way Scientific and Ohio Metal subsidiaries, corporate profitability remained elusive as acute and persistent uncertainty in the farm equipment industry drove weak demand and an unfavorable product mix.
“In response to these conditions we have reduced SG&A expenses significantly, 12% for the quarter and 15% year-to-date. We have also continued to invest in our manufacturing operations to drive efficiencies yet to be realized and have provided infrastructure to support the growth we are seeing this year at Art’s Way Scientific in particular. We have good opportunities in front of us and anticipate more contribution to the bottom line from our subsidiaries moving forward.”
Chairman of the Art’s Way Board of Directors, Marc H. McConnell reports, “Our results for the second quarter reflect the challenges that continue to plague the farm equipment industry. While consolidated revenue increased in the quarter due to improving circumstances at our Art’s Way Scientific and Ohio Metal subsidiaries, corporate profitability remained elusive as acute and persistent uncertainty in the farm equipment industry drove weak demand and an unfavorable product mix.
“In response to these conditions we have reduced SG&A expenses significantly, 12% for the quarter and 15% year-to-date. We have also continued to invest in our manufacturing operations to drive efficiencies yet to be realized and have provided infrastructure to support the growth we are seeing this year at Art’s Way Scientific in particular. We have good opportunities in front of us and anticipate more contribution to the bottom line from our subsidiaries moving forward.”
Art's Way Manufacturing (NASDAQ: ARTW) stock price history
The image below, obtained from Google, shows the stock price history of Art's Way over the last 5 years. And it's been a horrible time for Art's Way stockholders.5 years ago the stock was trading at around $5 a stock and its currently trading at $2.10 a stock. That's a very negative return of -58% lost by Art's Way stockholders over the last 5 years. The stock of Art's Way is trading at a lot closer to its 52 week low of $1.85 than it is 52 week high of $3.81 which to us is a clear indication that short term sentiment and momentum of Art's Way stock is very negative..
Art's Way Manufacturing (NASDAQ: ARTW) latest stock valuation
So what is Art's Way stock worth based on the release of their latest earnings report? Since the group is loss making and has been loss making for a while our base position for loss making firms is to value them at their stockholders equity per share. We therefore believe that the stock of Art's Way is worth $2.83 and based on the current stock price we feel they are undervalued.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $2.83 Thus we see a good entry point into Art Way's stock at $2.56 or below. But as we warned earlier in the article the stockholders equity will in all likelihood be diluted so one has to take that into account when looking to buy the share. Due to the continued losses and the fact that the current stockholders equity per share will probably be diluted we would not advise long term fundamental or value investors buy the stock of Art's Way right now. We rate Art's Way as avoid.
We usually suggest long term fundamental or value investors look to enter into a stock at least 10% below our target (full value) price which in this case is $2.83 Thus we see a good entry point into Art Way's stock at $2.56 or below. But as we warned earlier in the article the stockholders equity will in all likelihood be diluted so one has to take that into account when looking to buy the share. Due to the continued losses and the fact that the current stockholders equity per share will probably be diluted we would not advise long term fundamental or value investors buy the stock of Art's Way right now. We rate Art's Way as avoid.