FreightCar America Inc (NASDAQ:RAIL), a US$162.22M 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, a positive double-digit growth of 23.31% in the upcoming year , and a robust short-term growth of 26.49% over the next couple of years. This rate is larger than the growth rate of the US stock market as a whole. Today, I will analyse the industry outlook, and also determine whether FreightCar America is a laggard or leader relative to its capital goods peers. See our latest analysis for FreightCar America
What’s the catalyst for FreightCar America’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. In the past year, the industry delivered growth in the twenties, beating the US market growth of 11.06%. FreightCar America 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. Moreover, the trend of below-industry growth rate is expected to continue in the future with FreightCar America poised to deliver a -0.33% growth compared to the industry average growth rate of 23.31%.
Is FreightCar America and the sector relatively cheap?
The machinery sector’s PE is currently hovering around 23.93x, higher than the rest of the US stock market PE of 18.09x. This means the industry, on average, is relatively overvalued compared to the wider market. However, the industry returned a similar 11.30% on equities compared to the market’s 10.58%. Since FreightCar America’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge FreightCar America’s value is to assume the stock should be relatively in-line with its industry.
FreightCar America is a machinery industry laggard in terms of its future growth outlook. If FreightCar America has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than 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 FreightCar America’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 RAIL’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 FreightCar America? 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.