Art’s-Way Manufacturing Co Inc (NASDAQ:ARTW), a $12.89M small-cap, is a machinery manufacturing company operating in an industry, which faces increasing demand of capital equipment and machinery from developing economies in Asia, Latin America and the Middle East. Capital goods analysts are forecasting for the entire industry, a strong double-digit growth of 18.49% in the upcoming year , and an optimistic near-term growth of 24.66% over the next couple of years. This rate is more than double the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, and also determine whether Art’s-Way Manufacturing is a laggard or leader relative to its capital goods peers. See our latest analysis for Art’s-Way Manufacturing
What’s the catalyst for Art’s-Way Manufacturing’s sector growth?
Machinery manufacturers face the challenge of managing a plethora of new data so that it becomes useful, adapt technology to run their supply chains and operations more efficiently, and build strategic partnerships that will help grow market share. Over the past year, the industry saw growth in the teens, beating the US market growth of 10.47%. Art’s-Way Manufacturing lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its machinery peers. As the company trails the rest of the industry in terms of growth, Art’s-Way Manufacturing may also be a cheaper stock relative to its peers.
Is Art’s-Way Manufacturing and the sector relatively cheap?
The machinery sector’s PE is currently hovering around 26.7x, higher than the rest of the US stock market PE of 20.1x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.59% on equities compared to the market’s 10.43%. Since Art’s-Way Manufacturing’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Art’s-Way Manufacturing’s value is to assume the stock should be relatively in-line with its industry.
Art’s-Way Manufacturing has been a machinery industry laggard in the past year. If Art’s-Way Manufacturing has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although it delivered lower growth relative to its capital goods peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Art’s-Way Manufacturing’s fundamentals in order to build a holistic investment thesis.
- 1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- 2. Historical Track Record: What has ARTW’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Art’s-Way Manufacturing? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.