In such a global economy, there must exist an easy and affordable way to transport the various goods to make the economy run. There are a number of companies out there dedicated to providing these services. And one of them that investors should take into consideration is a company called P.A.M. Transportation Services (NASDAQ:PTSI). In recent years, the enterprise has exhibited some volatility in its financial performance. But the overall trend has been positive. In particular, the company's 2021 fiscal year was robust. And although shares of the business are probably more or less fairly valued compared to the competition, they are priced at levels low enough on an absolute basis to warrant some consideration.
The business model championed by P.A.M. Transportation Services involves the company acting as a truckload dry van carrier that transports general commodities throughout the continental US and throughout certain Canadian provinces. The company also provides some transportation services in Mexico through agreements with carriers located there. When I say that the company focuses on general commodities, I mean that they provide a wide range of freight transportation services that help to transport automotive parts, expedited goods, consumer goods like store merchandise and manufactured goods, as well as other related products.
Although the company operates in one key segment, its revenue stream is a bit more diverse than that. For instance, in its latest completed fiscal year, it attributed 76.9% of its revenue to truckload services, excluding fuel surcharges. The remaining 23.1% of sales, again excluding fuel surcharges, came from brokerage and logistics services that it provides its clients with. In addition, though the company has operations spread throughout the North American continent, it very much is a US-centric firm, with 66% of its sales coming from domestic shipments. The remaining 34% of sales come from freight originating from or destined to locations in Mexico or Canada.
Between 2017 and 2020, sales generated by P.A.M. Transportation Services moved around in a very narrow range of between $437.8 million and $533.3 million. In 2020, sales came in at $486.8 million. But then, in 2021, revenue jumped, climbing to $707.1 million. Interestingly, this came even as the number of miles the company's trucks traveled decreased, falling from 193.48 million to 182.91 million. Where the company made up for this was in pricing and the number of loads that its trucks took. In 2021, as an example, the company generated $2.35 in revenue per mile traveled. That was up from the $1.75 achieved one year earlier. The number of loads for the company increased by 2.1%, climbing from 349,803 to 357,090. As a result of all of this, the revenue that the company generated per truck per week jumped, climbing by 30.2% from $3,317 to $4,320.
With revenue having increased, profitability has followed suit. But, just as in the case of revenue, profits have not always been moving in a steady direction. The worst of the past five years for the company was in 2019 when profits were just $7.9 million. The best year, excluding 2021, was in 2017 when the business generated income of $38.9 million. This was eclipsed in 2021 when the firm reported profits of $76.5 million. Less volatile has been the cash flow generated by the company, as well as its EBITDA. Between 2017 and 2021, operating cash flow increased from $50.6 million to $101.7 million. Of course, not even it was a perfect uptrend. In fact, between 2018 and 2020, the company saw sequential declines in cash flow. Meanwhile, EBITDA experienced a general uptrend, climbing from $55.9 million in 2017 to $137.7 million in 2021.
Taking this data, we can attempt to price the business. Using the figures from 2021, the company is trading at a price to earnings multiple of 9.4. The price to earnings multiple if we rely on the 2020 figures is substantially higher at 40.4. This should underscore just how unreliable this one particular metric is when it comes to evaluating the business. And it should also cause investors to realize that buying into this firm is not going to be a steady, secure path forward. It is a volatile prospect, they can fluctuate materially from year to year. But I digress. On a price to operating cash flow basis, the company is trading at a multiple of 7.1. This is down from a still rather low 10.6 that we get if we rely on the 2020 data. And finally, we arrive at the EV to EBITDA approach. The multiple here for 2021 is 6.4. This compares to the 9.7 we get if we rely on the 2020 figures.
|Company||Price / Earnings||Price / Operating Cash Flow||EV / EBITDA|
|P.A.M. Transportation Services||9.4||7.1||6.4|
|Yellow Corporation (YELL)||N/A||20.7||5.3|
|ArcBest Corporation (ARCB)||13.4||7.9||5.6|
|USA Truck (USAK)||8.6||3.6||3.3|
|Knight-Swift Transportation Holdings (KNX)||12.5||9.4||7.2|
As part of this analysis, I decided to compare the company to five other similar firms. On a price-to-earnings basis, these companies ranged from a low of 8.6 to a high of 13.9. Relying on the 2021 estimates, only one of the five companies was cheaper than our prospect. The price to operating cash flow approach resulted in a range of 3.6 to 20.7. Here, two of the five companies were cheaper than our target. And finally, we get the EV to EBITDA approach, with a range of 3.3 to 7.2. In this case, four of the five companies were cheaper than P.A.M. Transportation Services.
At present, I must say that I am not all that impressed with the track record achieved by P.A.M. Transportation Services. Although 2021 proved to be a great year for the company, we cannot rely on that as a regular year given the supply chain issues affecting the broader economy. And historical performance in the years prior to that reveals a company that is extremely volatile from year to year. Having said that, in most cases, shares do look to be rather cheap, even if we revert back to figures generated in 2020. So while investors may not view this as a home run sort of opportunity, it may be worth some consideration for the right kind of investor. This would be somebody value-oriented who either believes current trends will persist for a while and/or somebody who doesn't mind a mediocre firm at a decent price.
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This article was written by
Daniel is currently the manager of Avaring Capital Advisors, LLC, a registered investment advisor that oversees one hedge fund, and he runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein.
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.