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Park-Ohio Continues to Rise Although Mario Gabelli Reduces Position

January 02, 2014 | About:

According to GuruFocus Real Time Picks, Mario Gabelli made on Dec. 20 a reduction to Park-Ohio Holdings Corp. (PKOH). So, one question arises: What does Gabelli see to reduce that position?

The company is an industrial supply chain logistics and manufacturing business operating in three segments: Supply Technologies, Assembly Components and Engineered Products.

Expansion Through Cash-Acquisitions

With the acquisition in 2012 of Fluid Routing Solutions Holding Corp., a leading manufacturer of automotive and industrial hose products, the firm expands its operations across North America, Europe and Asia. We think this is a good way to improve the chances of building successful international operations. The transaction was valued at $96.0 million. But this strategy was repeated this year in a transaction valued at $20 million. Park-Ohio also acquired some assets of Bates, a top company in the manufacture of extruded, formed and molded products and assemblies. With both acquisitions the firm aims to expand its business while it remains the risk to integrate the operations of the acquired companies.

Valuation

In terms of valuation, the stock sells at a trailing P/E of 15.1x, trading at a discount compared to an average of 20.2x for the industry. To use another metric, its price-to-book ratio of 4.4 indicates a premium versus the industry average of 1.49 and the price-to-sales ratio of 0.5 is below the industry average of 0.91.

Earnings per share (EPS) declined by 26.6% in the most recent quarter compared to the same quarter a year ago. Also, it has demonstrated a positive trend in EPS growth over the past four years as shown in the next graph. We include the stock price because EPS often lead the stock price movement.

As seen in the graph, we can see the interesting upward trend in the stock price. The appreciation was 136% in the trailing 12 months, exceeding all possible comparisons and becoming very attractive for investors.

Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased when compared to the same quarter one year ago but still is a huge positive number and higher than the ones showed by Standex International Corporation (SXI), Barnes Group Inc. (B) and Tredegar Corp. (TG).

Ticker

Company Name

ROE (%)

PKOH

Park-Ohio Holdings Corp

31,2

SXI

Standex International Corporation

15,4

B

Barnes Group Inc.

11,9

TG

Tredegar Corp

7,6

 

Final Comment

Revenue growth has slightly outpaced the industry average, which means in simple words that is gaining market share. Also, net income has increased by 14% when compared to the same quarter one year prior.

While Hedge fund guru Joel Greenblatt bought the stock, Mario Gabelli has reduced it as well as Jim Simons. The firm is currently Zacks Rank # 3 - Hold, and it also has a longer-term recommendation of “Neutral.”

Although my track record as an investor is not at all comparable to Mario Gabelli´s, I will not recommend following him this time. For me, the company is a buy.

 

Disclosure: Damian Illia holds no position in any stocks mentioned.


Rating: 4.6/5 (8 votes)

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