Pat McKeough responds to many requests from members of his Inner Circle for specific stock advice as well as questions on investment strategy and the economy. Every week, his comments and recommendations on the most intriguing questions of the past week go out to all Inner Circle members. And each week, we offer you one of the highlights from these Q&A sessions. While we reserve our buy-hold-sell advice for Inner Circle members, these excerpts provide a great deal of information and analysis on stocks we’ve covered for members of Pat’s Inner Circle.
This week an Inner Circle asked us about one of the small cap stocks that serve the agricultural industry in Western Canada. In addition to its sales of equipment, Rocky Mountain Dealerships provides other services, such as parts and repairs, to customers in agriculture and construction. Pat examines the company’s business and its financial outlook and looks at Rocky Mountain’s long-term prospects in a cyclical business depending on crop yields.
Q: Hi Pat: What do you think about the long-term potential of small cap company Rocky Mountain Dealerships?
A: Rocky Mountain Dealerships (symbol RME on Toronto; www.rockymtn.com) is one of Western Canada’s largest agriculture and construction equipment dealers, with a network of 38 locations across the Prairie provinces.
The company’s network includes 25 branches in Alberta, 9 in Manitoba and four in Saskatchewan, all operating under the Rocky Mountain Equipment name.
Rocky Mountain is Canada’s largest dealer of equipment made by CNH Industrial N.V. It is also a major seller of gear from a number of other manufacturers, including Bourgault, Seedhawk, Terex, Dynapac, Leeboy and Metso.
The company sells new and used equipment and parts. It also offers a range of services, including equipment repair, financing, insurance and shipping, as well as GPS signal subscriptions.
Reducing inventory pushes up revenue despite weakness in construction markets
In the three months ended September 30, 2013, Rocky Mountain’s revenue rose 10.1%, to $272.6 million from $247.5 million a year earlier. However, earnings per share fell 31.1%, to $0.31 from $0.45.
The company focused on reducing its used equipment inventory in the latest quarter, which pushed up its revenue despite continued weakness in construction markets. Selling more used gear hurt Rocky Mountain’s profit margins and earnings, but it did let it reduce its overall inventory levels by $78.0 million, bringing them back to year-earlier levels.
Rocky Mountain’s $42.5 million of long-term debt is 18.0% of its $235.7-million market cap. Its quarterly $0.10 dividend yields 3.2%.
In the Inner Circle Q&A, Pat examines the long-term outlook for Rocky Mountain Dealerships in light of its reliance on steady crop prices. He also looks at the company’s earnings forecast for the year ahead. He concludes with his clear buy-hold-sell advice on this stock.
COMMENTS PLEASE&38212;Share your investment experience and opinions with fellow TSINetwork.ca members
Although many observers have been touting the prospects of agricultural stocks due to the need to feed a growing world population, agriculture remains a cyclical business. Do you invest in agricultural stocks? What is the main attraction of these stocks for you?
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