Currently, ETF.com shows that 23 ETFs have Daseke, Inc. (DSKE) in their portfolios which totals approximately 2.8M shares. If that many funds have DSKE in the portfolios, maybe it should be in mine also. So, would this be a good swing trade candidate right now or possibly even a viable long-term position for my portfolio? That’s what I plan to find out.
Daseke as of a couple of weeks ago was still searching for the right CEO for their organization. As we all know, having the right leader and team in place can make or break a company. With that said, the board has been working to decrease their overall debt this past year which they have done by 17.2%. While the lack of an official CEO is a negative, the decreasing total debt is a positive.
Company Background:
“Daseke, Inc. is the largest flatbed and specialized transportation and logistics company in North America. Daseke offers comprehensive, best-in-class services to many of the world’s most respected industrial shippers through experienced people, a fleet of approximately 6,000 tractors and 13,000 flatbed and specialized trailers, and a million-plus square feet of industrial warehousing space.
Smokey Point Distributing, E.W. Wylie, J. Grady Randolph, Central Oregon Truck Company, Lone Star Transportation, Bulldog Hiway Express, Hornady Transportation, Big Freight Systems, The Steelman Companies, The Roadmaster Group, TSH & Co. and The Boyd Companies — including Boyd Bros. Transportation and WTI Transport — are the operating companies of Daseke Inc.”
Source: Daseke, Inc. Website
Of those following individual companies, I know that Boyd Brothers used to be a public company trading under the symbol BOYD. I am also familiar with Hornady Transportation and WTI Transport. All three of those private companies operate large fleets and have been successful for many years now. The fact that those three companies are partnered with Daseke makes me feel better about the direction Daseke is heading. One more positive for starting a position...
Lets look at their recent stock price and also go back five years to get a 10,000 ft view.
Daily Chart - 30 Days:
The stock has been trading below the $6 mark since their CEO Christopher Easter retired back in early January. DSKE has also been on a steady downhill track with a current 20 Day MA of $5.41 but appears to be stabilizing.
Daily Chart - 5 Years:
There was huge retraction of the price since Jan 2018, all the way to being warned of de-listing if the stock price did not increase which happened during the 2020 COVID-19 pullback. Since that time though, management appears to have made some hard decisions which included the sale of Aveda. Selling off their Aveda division helped their stock reach a yearly high of $7.50. That would of been a five to six point gain if you were able to catch the bottom!
Metrics |
2020 |
2019 |
Net Income – Consolidated |
6.2M |
-307.4M |
Return on Equity |
0 |
-0.0049 |
Price to Sales |
0.24 |
0.11 |
Projected Earnings Growth Rate |
7.1% |
20.7% |
PEG ratio |
n/a |
n/a |
Debt-to-EBITDA Ratio |
2.81 |
0 |
As you can see from the metrics above, DSKE is just now starting to return a profit again which should help to increase their share price. Although their projected growth rate is down from 2019, the sale of Aveda has given their cash flow new life and will help stabilize them financially. The downside to their projections and efforts is still the about of debt they are carrying compared to net profits. Right now, that ratio is 2.81 instead of below the 2.0 mark which is where I would like to see it in terms of a long-term investment idea. I think we will be able to see if DSKE's board is serious about further reducing their debt by the time the Q2 2021 earnings report is released.
Competition:
|
Comparison (12/31/20) |
Trailing P/E |
P/FCF |
PEG |
Debt- to- EBITDA |
Total Debt |
Daseke |
N/A |
36.34 |
N/A |
2.81 |
503.5M |
36.99 |
3.09 |
2.37 |
0.08 |
99.9M |
|
| J.B. Hunt (JBHT) | 29.39 |
2.66 |
1.92 |
1.05 |
1.29B |
| Knight-Swift (KNX) | 21.34 |
0.13 |
1.01 |
1.41 |
890M |
| Landstar System (LSTR) | 29.60 |
3.48 |
2.23 |
0.56 |
175.5M |
Matching up Daseke against some of their rivals, you can see that they are having to play catch-up to get on par with the other trucking companies in their space. In terms of debt alone, they have the highest Debt-to-EBITDA of the others listed but this also gives them the greatest potential at being a turn-around story.
In regards to P/FCF, their low share price gives them a higher "bang-for-buck" rating in my book as long as they continue to make great strides in transforming their financials. This lower price, which has been trading in the $5 range, means I can buy more shares with less capital and still make a decent return should they turn things around.
Now, let's say they don't continue to reduce debt and their financials weaken again. If that were to happen, they would fall back into the penny stock range and most likely lose a great deal of shareholders. I personally don't think they could survive another possible de-listing and is the main reason I think holding off till the next earnings release would be prudent for any new long position.
Beyond the Numbers:
- Daseke is expecting the freight tonnage to remain about the same as last year. I agree with this based upon the guidance given by other companies like Paccar (PCAR) and Old Dominion (ODFL). To my knowledge, there is still a shortage of heavy-duty truck drivers in the U.S. which speaks to the amount of volume of tonnage out there to move on a monthly basis so the tonnage should remain on par with last year. There is a good chance of the tonnage increasing as businesses like AMC, travel, and schools are allowed to resume normal operations from the COVID-19 lockdowns. This is also the viewpoint of the ATA which helps makes a case for starting a long position.
“Tonnage ended last year on a high note,” said ATA Chief Economist Bob Costello. “The index not only registered the largest monthly gain since June, but it also had the first year-over-year increase since March. Freight continues to be helped by strong consumption, a retail inventory restocking, and robust single-family home construction. With the stimulus checks recently issued and with a strong possibility of more in the near future, I would expect truck freight to continue rising.” [Source]
- According to their Investor Presentation that was released earlier this month, they are working on a new administrative infrastructure. The result should help them gain some operational efficiencies and streamline processes. They have been going through growing pains and look to finally be addressing some of their major pain points.
Looking Forward - Action Items for Long Term Investment
- Officially naming a replacement CEO is a must by the next earnings release. Thomas Carlyle said that “A man without a goal is like a ship without a rudder” and the same can be said for a company without a leader.
- Moving forward, I want to see a continued debt reduction by 2.5% per quarter and/or proof that they are working towards a 10%+ reduction for the fiscal year ending 2021.
- Total Revenue increased by 7.6% in 2019 versus 2018, then dipped in 2020 due to COVID-19 but has recovered over the last twelve months. So a increase in Total Revenue of 5% or greater should be an achievable number to reach in my opinion as our economy continues to open up and tonnage moved increases.
Conclusion:
Based upon their latest earnings and news, the new leadership is righting the ship by working on improving their free cash flow and streamlining administrative processes. They still have to appoint a CEO that can continue the path to being profitable, so hopefully, they can find that person quickly.
While they still have a way to go, I plan on adding them to my personal watch list. Daseke might be a possible swing opportunity closer to the next earnings release. Looking for an entry around $6 and exit in the mid to $7s. Typically I look for at least a 3:1 RRR, which this possible swing could reach. More likely though it could only be a one-point gain which still is worth the risk on a small position in my opinion.
If they continue to reduce debt and increase their bottom line then I will entertain a long-term growth position.