August 9, 2019
Linamar Reaches New Lows
Shares of Linamar touched below $38.00 in trading Friday after reporting earnings a day earlier. During the quarter the company posted EPS of $2.40, down from $2.93 a year ago. Sales came in lower at 2.086 billion compared to 2.157 billion. Linamar operates in a cyclical industry where manufacturing slow down can play a significant role in sales and earnings. Let’s not all hit the sell button just yet.
Sales for the 6 months remain modestly higher than a year earlier, so one bad quarter should not be the reason for punishing the stock. The company trades at a PE of less than 5, trades at a favorable price to book ratio, and includes a stable dividend. Last years sales came in more than 7.6 billion while the companies market cap is around 2.7 billion. Over the last 4 years sales and net income have increased more than 80%.
Despite these positive developments over the years investors have hit the door running from a 52 week high of $67 to a 52 week low of $37.92. Given managements direction for “EBITDA growth to resume in the back half of the year”, I think its too early for the stock to continue sliding. There remains sufficient cash on the balance sheet for the company to whether any short term turbulence as well sufficient earnings to support any slow down.
My expectation over the coming weeks would be a rebound to $43-45/share given the recent sell off. Disclosure: I am long Linamar.