Trading at just $3.56 a share, Accuride Corporation (NYSE: ACW) is quite an interesting stock to follow. Its share price has been quite volatile, having started the year at a low of $3.21, doubling during the latter half of this year before receding to its earlier position. This trend is quite similar to that of other small-cap stocks which saw selloffs as it was announced that the Federal Reserve was going to start unwinding its asset buying program. A number of small-cap stocks lost the spectacular gains that they had achieved at the beginning of the year as investors pulled their money away from the stock market. Accuride Corporation, despite not having all the ingredients to be labeled a hot emerging growth stock, has reason for closer attention to be paid to it.
Perhaps one of the things that has been keeping investors away from this stock is its negative earnings history. Accuride Corporation has not posted any profits for the past four consecutive quarters, however these loses have been narrowing. For example, for the third quarter of 2013 Accuride Corporation reported a loss of $18.6 million, a big improvement from $157 million recorded during the same period last year. Looking at the bigger picture, Accuride Corporation is a company coming out of a managed bankruptcy and restructuring program. As a supplier of auto parts, its business was hit hard by the problems in the U.S. auto industry. Investors have been quite optimistic about the company's future prospects since it came out of bankruptcy, but that optimism may be beginning to fade. Long-term debt standing at around $324 million casts a dark shadow on the company's balance sheet. ACW may have to renegotiate payment terms with creditors so it can continue implementing its restructuring program.
Challenging Business Environment
Accuride Corporation is operating in a very competitive industry that is yet to fully recover. Even once it is operating at maximum, the U.S. auto industry will be just a fraction of what it used to be before the depression. In addition, sales have been hurt by weak demand for components from the mining and oil and gas sectors. The company is undertaking long-term capital investments in order to introduce enhanced products into the market. What effect this will have on the company's bottom line is yet to be seen.
Although investors may be concerned about Accuride Corporation's high debt overhang, negative earnings, and its ability to remain competitive in a challenging industry, prospects seem quite bright for this company. Last month, hedge fund firm Coliseum Capital Management bought $2 million worth of Accuride Corporation's shares. When a hedge fund buys into a company's shares, then it is most likely it has done due diligence beforehand and the decision is based on the shares making a good return in the future. Accuride Corporation will make a good pick for any investor who wants to go long-term.