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Chuck Royce's Firm Leaves FreightCar America at the Station

Royce & Associates, the investment firm founded by renowned guru Chuck Royce (Trades, Portfolio) in 1972, disclosed it trimmed its FreightCar America Inc. (NASDAQ:RAIL) 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.

According to GuruFocus Real-Time Picks, a Premium feature, the firm sold 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.

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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.

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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.

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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.

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Other transportation and logistics stocks the firm held as of the three months ended June 30 included Kirby Corp. (NYSE:KEX), Landstar System Inc. (NASDAQ:LSTR), Forward Air Corp. (NASDAQ:FWRD), Seacor Marine Holdings Inc. (NYSE:SMHI), Dorian LPG Ltd. (NYSE:LPG), ArcBest Corp. (NASDAQ:ARCB), Trinity Industries Inc. (NYSE:TRN), Werner Enterprises Inc. (NASDAQ:WERN) and Saia Inc. (NASDAQ:SAIA).

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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This article first appeared on GuruFocus.