My core investing thesis is that as half the world's population migrates to Western living standards they're going to need a lot of stuff. I want to own companies that build or sell the stuff that helps build other stuff. One such company, or at least I thought, is Gehl Company (GEHL).
I've owned GEHL for over a year and taken a beating (-25%). I think I know the problem: it's too tethered to developed markets (U.S. and Europe) and not enough to emerging markets (pretty much everything else). Ooh, that's a big insight. Snaps to me, right?
Roughly 85% of GEHL's distributor network is in the U.S. or Europe. The company has one foreign office. Manufacturing is entirely domestic. It helps finance its dealers (floor plan, retail and fleet) and the top ten represent a quarter of its revenue. In 2006 the company discontinued its agricultural implement business, citing an irreversible customer base decline.
I'm rereading the 2006 Annual Report (.pdf) to see what I missed. GEHL's undiversified commitment to the domestic light construction market (read: housing) has caused the stock substantial pain in the last year. Profitably ramping up an international footprint takes time and capital.
If it had a lot of the latter it wouldn't be a small cap, now would it? What I need to uncover is whether the housing pain is overblown for this company, not whether the housing pain is overblown generally.
After that, I need to uncover whether it has the intent or wherewithal to expand outside the U.S. That's going to be hard. I really wish I had done this a year ago.
Disclosure: Long GEHL