Gencor Industries, Inc. (DE) (NASDAQ:GENC) is the leading manufacturer of asphalt plants, soil remediation plants, combustion systems and screening equipment for the road and highway construction industry. The company has a market capitalization of $83 million and an average daily volume of 17,481—so the stock is somewhat illiquid.
Gencor Industries valuation
That said, Gencor Industries, Inc. (DE) (NASDAQ:GENC) offers deep value the likes of which is hard to come by in this strong market. For a start, at the end of the company’s second fiscal quarter, Gencor reported a shareholder equity of $108 million with 9.5 million shares outstanding, which gives a book value per share of $11.38, 30.5 percent away from the current stock price of $8.83. In addition, the company’s current assets are worth $108.5 million and total liabilities, both long and short term only amount to $8.8 million. What’s more, cash accounts for the majority of the company’s assets. In particular, cash is worth around $9.53 per share.
Moreover, Gencor Industries, Inc. (DE) (NASDAQ:GENC) is cash generative and for the first three months of the company’s fiscal 2013, increased its cash balance by around 10 percent, with an annualized free cash flow yield of 15 percent.
Gencor Industries revenue generation
Having said all of that, while Gencor Industries, Inc. (DE) (NASDAQ:GENC)’s stock is currently trading in deep-value territory and the business is cash generative, the company has not always been so reliable. Indeed, the company’s trailing-twelve-month earnings per share are still 85 percent below the highs seen back in 2005. However, over the same period revenue has expanded 32 percent, so margins have contracted and efficiency has deteriorated. Still, the company’s large cash balance has been built up with retained earnings, not asset sales and issuance of new stock, which is often the case. Common size analysis reveals that the company raised $5 million from the sale of some assets back in 2005 but since there have been no significant balance sheet changes.
Apart from its net-nets discount, there is lack of any serious upcoming catalyst that could move the company’s stock. The company trades at a trailing-twelve-month price-earnings ratio of 16, which is expensive for machinery and construction equipment producers. However, based on the company’s earnings for the first fiscal three quarters of this year, Gencor Industries, Inc. (DE) (NASDAQ:GENC) only needs to achieve a profit of $0.04 per share during the fiscal fourth quarter to achieve annualized EPS growth of 10%. EPS of more than $0.06 would put the company on a PEG ratio of <1 indicating GARP value that could be the stocks required catalyst.
Common stock price shifts
Still, for the past five years, Gencor Industries, Inc. (DE) (NASDAQ:GENC) has been stuck in a range. The company’s stock price has bounced between $6 and $8, and throughout this period the company has consistently traded below its book value per share. Indeed, for the past five years the company has traded at an average price-to-book ratio of 0.7, 10 percent below its current valuation of 0.8.
As far as I can tell, analyst coverage is non-existent on Gencor, which can often be a good sign.