As a turnaround story, Commercial Vehicle Group (NASDAQ:CVGI)
has been a lousy call. The company has not had all that much success
growing share within the seating market for commercial trucks, and
management has tried to build up it agriculture and construction
businesses during major downturns in those two markets. While the
company has made what I consider to be underrated progress in improving
its margins, balance sheet, and free cash flow, the fact remains that
the shares are down almost 50% over the past year and about 60% over the
past three years - significantly underperforming other commercial
vehicle parts/components manufacturers like Cummins (NYSE:CMI), Allison (NYSE:ALSN), and Grammer AG.
Now
things are about to get even more challenging. The North American
commercial truck market is likely at or near its near-term peak, and
that doesn't bode well for volumes, or margins, in the company's largest
and most profitable business. The ag and construction markets are still
soft and not really in a position to contribute offsetting growth. Last
and by no means least, the company recently announced the departure of
its CEO after less than three years in the job.
While
the shares arguably do still trade below fair value, it's hard to argue
that investors need to risk their hard-earned money on this turnaround
story. The company could well be looking at two or three years of
revenue contraction and margin deleverage, and that is often enough to
scare off most investors. Patience could still pay here, but the ride is
likely to get a lot bumpier before smoothing out.
Follow this link for more:
Commercial Vehicle Changing Gears At An Inopportune Time
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