In a lot of meaningful ways, Japan's THK (OTCPK:THKLY) is a great company. The company's linear motion systems are mission-critical components for machinery like robots, machine tools, and semiconductor tools that demand precision and reliability, and the company still enjoys roughly 50% global share. On the other hand, THK has struggled to translate that leadership into attractive margins, growth, or returns on capital, and in many cases, customers like DMG Mori (OTCPK:MRSKY) and Applied Materials (NASDAQ:AMAT) have been the better choice for investors.
I'm not optimistic that there will be a profound change for the better on the way. While THK should see an improvement in the machine tool and machinery end markets, competition is rising from component manufacturers in China, Taiwan, and other countries. What's more, I don't think the company's diversification into auto components is likely to build upon the margins and cash flow generation capabilities. THK shares don't seem unreasonably priced on an EV/EBITDA basis, but the cash flow valuation is not compelling and the 60% move from the lows of the past year seems like adequate compensation for the improving end market outlooks.
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THK Struggles To Translate A Great Business Into Great Financials