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Twin Disc: Won’t Reach Intrinsic Value Anytime Soon
Posted by: Jae Jun (IP Logged)
Date: March 29, 2012 04:29PM
Twin Disc makes transmissions, shift controllers, propellers, water jets and other industrial power transmission products for marine and industrial vehicles. You can get an idea of what products they sell from the links below.
The stock dropped 18% on earnings announcement in January and is now down 27% YTD.
But, does it offer any value?
Twin Disc Spider Graph
Findings on Management
Company GrowthTWIN sells to the oil industry and at the moment with oil prices increasing, their 6 month backlog as of June 2011 was $146.9m vs $84.4m.
This is quite a big jump in the 6 month backlog. Shows that there is potential and demand for their products provided the economy helps.
However, TWIN is better than most small industrial companies because they design specially engineered products to meet and serve market demand. If they continue to research and develop products, they can grow but it is difficult to differentiate from competitors.
Add in the fact that the majority of company growth has to come from an improving economy. These types of companies are under heavy economic influences. Unless there is a total product in a truck or boat, customers are not inclined to purchase their products. Or if money is tight, it is easy to get a part serviced or fixed versus replaced.
Strategic Advantage/MoatI cannot think of or find any strategic advantages.
Even the goodwill section in the annual report does not show anything significant in terms of hidden assets or relationships which could be interpreted as a moat.
CompetitorsThere are lots of competitors both domestically and internationally selling power transmission products. Up to this point, I don’t find TWIN attractive enough to go through their competitors.
Financial Numbers and Quick Valuation
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