Lindsay Corporation (NYSE:LNN), a US$1.1b small-cap, operates in the machinery manufacturing 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, an extremely elevated growth of 31% in the upcoming year , and a massive growth of 40% over the next couple of years. the growth rate of the US stock market as a whole. Below, I will examine the sector growth prospects, as well as evaluate whether Lindsay is lagging or leading in the industry.
What’s the catalyst for Lindsay’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 more efficiently. In the past year, the industry delivered growth in the twenties, beating the US market growth of 18%. Lindsay lags the pack with its negative growth rate of -12% over the past year, which indicates the company has been growing at a slower pace than its machinery peers. However, the future seems brighter, as analysts expect an industry-beating growth rate of 69% in the upcoming year. This future growth may make Lindsay a more expensive stock relative to its peers.
Is Lindsay and the sector relatively cheap?
The machinery industry is trading at a PE ratio of 22.59x, in-line with the US stock market PE of 20.13x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 13% compared to the market’s 10%, potentially illustrative of past tailwinds. On the stock-level, Lindsay is trading at a higher PE ratio of 49.06x, making it more expensive than the average machinery stock. In terms of returns, Lindsay generated 7.8% in the past year, which is 5.2% below the machinery sector.
Lindsay’s industry-beating future is a positive for shareholders, indicating they’ve backed a fast-growing horse. However, this higher growth prospect is also reflected in the company’s price, suggested by its higher PE ratio relative to its peers. If Lindsay has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other machinery companies. However, before you make a decision on the stock, I suggest you look at Lindsay’s fundamentals in order to build a holistic investment thesis.
- 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.
- Historical Track Record: What has LNN’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.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Lindsay? 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.