The industry is in a bit of a bubble, some say, that will burst within the next few months/years. Nonetheless, I think this may be a good time to by RAIL, since the bearishness on the industry going forward in the short-term has left the stock under-appreciated and poised to break out over the next few years, as coal has become a more long-term viable and growing business.
Things I like about the company:
- Great market share
- Working to diversify its revenue stream by offering cars catered to the needs of other buyers (not just coal transporters)
- Great returns on capital and respectable margins
- Growing institutional interest given Buffett’s recent railroad purchase and the cheapness of the stock
- Transparency of a good chunk of the next year to two year’s revenue given the nature of contracts with customers and order backlog records.
Things I don’t like:
- Cyclical business
- Product with long life-cycle, dependent upon spotty orders and infrequent repeat business for replacements
- My own uncertainty of the coal industry