Royce & Associates, the investment firm founded by renowned guru Chuck Royce (Trades, Portfolio) in 1972, disclosed it trimmed its FreightCar America Inc. (RAIL, Financial) position by 24.51% on Aug. 31.
The New York-based firm, which specializes in small-cap companies, picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. The portfolio managers also look for value opportunities among companies trading at a discount to enterprise value.
Having reduced its position over the past several quarters, GuruFocus Real-Time Picks, a Premium feature, showed the firm sold an additional 267,339 shares of the Chicago-based company, impacting the equity portfolio by -0.01%. It now holds 823,377 shares, which represent 0.03% of the portfolio. The stock traded for an average price of $4.18 per share.
GuruFocus estimates the firm has lost 35% on the investment since the fourth quarter of 2009.
The company, which manufactures freight cars for the railway industry, has a $54.98 million market cap and an enterprise value of $85.39 million; its shares were trading around $4.35 on Friday with a price-book ratio of 0.33 and a price-sales ratio of 0.18. GuruFocus noted these figures were all near 10-year lows.
The median price-sales chart shows the stock is trading below its historical average, suggesting it is undervalued.
On July 31, the company recorded second-quarter results, posting a loss of $1.26 per share on $73.7 million in revenue. It delivered 729 units during the quarter, while the backlog totaled 1,121 railcars.
GuruFocus rated FreightCar America’s financial strength 5.3 out of 10. Despite having a cash-debt ratio that outperforms over 60% of competitors in its industry, the Altman Z-Score of 1.30 warns the company is in financial distress and could be at risk of going bankrupt.
The company’s profitability and growth fared even worse, scoring a 3 out of 10 rating on the back of negative margins and returns that underperform a majority of industry peers, a low Piotroski F-Score of 3, which indicates poor operating conditions, and declining revenue per share over the past five years. FreightCar also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
With 6.55% of outstanding shares, Royce’s firm remains FreightCar’s largest guru shareholder. Prem Watsa (Trades, Portfolio) and Jim Simons (Trades, Portfolio)’ Renaissance Technologies also own the stock.
Portfolio composition and performance
The firm’s $11.06 billion equity portfolio, which was composed of 1,153 stocks as of the end of the second quarter, is largely invested in the industrials and technology sectors.
Other transportation and logistics stocks the firm held as of the three months ended June 30 included Kirby Corp. (KEX, Financial), Landstar System Inc. (LSTR, Financial), Forward Air Corp. (FWRD, Financial), Seacor Marine Holdings Inc. (SMHI, Financial), Dorian LPG Ltd. (LPG, Financial), ArcBest Corp. (ARCB, Financial), Trinity Industries Inc. (TRN, Financial), Werner Enterprises Inc. (WERN, Financial) and Saia Inc. (SAIA, Financial).
According to the firm’s website, the Royce Premier Fund slightly outperformed its benchmark in 2018 with a return of -10.4%. The Russell 2000 posted a -11% return.
Disclosure: No positions.
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