Joy Global, Inc. ( JOY ) manufactures and services mining equipment and offers pretty much anything a mining company could need; it's truly a one-stop-shop. But the stock has recently taken a big hit due to negative economic data and a bleak macroeconomic outlook (slowing growth in China, Brazil, India, etc.) But putting all macroeconomic data aside, let's take a look at the individual company's numbers. Forget the fact that the company must compete with industrial giants like Caterpillar ( CAT ); forget the fact that the company operates in an industry which is so dependent on the health of the overall economy (more specifically the demand for coal). Just take a look at the numbers, and the numbers only.
In the past three months, from March 7th to June 7th, the share price has tumbled 28%. YTD the price is down over 36%, which doesn't look too impressive when compared to Caterpillar's 12% loss YTD. On this day one year ago, you could buy one share of Joy Global for about $89 and change; today you have the opportunity to buy one share of Joy Global for less than $59; but is this devaluation warranted? Let's dig a little deeper to determine if this stock is a diamond in the rough, or just a shiny shard of glass.
Some numbers for Joy Global:
Market Cap: $6.07 billion
52 Week Range: $53.25-$101.44
Current Share Price: $57.33
50 Day Moving Average: $65.03
200 Day Moving Average: $77.83
Trailing P/E: 8.73
Forward P/E: 7.33
Average EPS Growth (last 5 years): 20.21%
Profit Margin: 13.63%
Operating Margin: 21.35%
Total Cash: $390.98 million
Total Debt: $1.64 billion
Current Ratio: 1.68
Dividend (%): $.70 (1.2%)
more stats: finance.yahoo.com/q/ks
With a market cap of around $6 billion, JOY is still small enough to offer investors with great growth potential, while it is also large enough to serve as an established business rather than some fly by night start up. A market capitalization of $6 billion is near the bottom of its 52 week range which just hit its low on June 4th, and is well below its high of $10.7 billion. The current share price is 12% below its 50 DMA and 26% below its 200 DMA. As for earnings, JOY seems extremely cheap right now with a trailing P/E of 8.73, which is much cheaper than the industry (Farm & Construction Machinery if you were wondering) average of 17.6. And with a PEG of 0.43, earnings are expected to increase by 17.43% next year, and revenue by 12.48% (www.zacks.com/research/report.php). These estimates seem characteristic of JOY's incredible 5 year average EPS growth rate of 20.21%. With such impressive numbers it's surprising that the stock has performed so poorly; but let's take a look at profitability to see if we can catch anything there.
An operating margin of 21.35% and a profit margin of 13.63% are very respectable, especially when the industry's average profit margin stands at 6.7%. As for ROE, management has been extremely effective by squashing the industry average (20.40%) with its 35.77% ROE. So what's wrong with this stock then? Let's just check a few more things, like the balance sheet and dividend.
JOY holds a very healthy $390.98 million cash while utilizing a very controllable $1.64 billion in debt. Also, with a current ratio of 1.68, the company can pay off its short-term liabilities with short-term assets 1.68 times over. The company even pays a dividend, sure it's a modest one, and slightly under the industry average of 1.4%, but it's better than nothing.
So now that we've looked at enough numbers to give you nightmares about high school math, what is it that holds this stock back? Well, the company did lower 2012 earnings guidance by $.35, but with earnings north of $7 should this have such a negative impact on the stock? Probably not, but earnings don't really seem to be directing the price of the stock. Coal, a critical component of Joy Global's business, appears to be what truly determines the value of the company. The Market Vectors Coal ETF (NYSEARCA:KOL) very nearly tracks the price of JOY, at least over the past two years. It's very well possible that this trend can continue as JOY depends so heavily on coal production.
So, by the numbers, Joy Global seems like an incredibly cheap company for you value investors out there, while also providing solid growth potential for all you growth investors. But, as previously mentioned, it seems that JOY is more heavily influenced by the fluctuation of coal prices rather than the bottom line which, to me at least, is the thing that really matters. As demand for coal seems to be waning, it will be interesting to see how JOY handles the situation, if the situation needs to be handled at all.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.