GBX

Investment Analysis Clubs Saul’s Investing Discussions
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I found some pretty extensive discussion on this board about GBX from April 2015. It was tempting then…well sales have grown a lot since then. And the stock price is less than half what it was.

Seriously, as far as valuation goes, GBX is almost like PN was recently. The PE is 4. It’s a company that’s growing fast, but the stock is priced as if it’s going out of business. There’s plenty of uncertainty around the industry, but GBX has continued to grow sales and earnings in a big way.

Other than noting that the 1YPEG is currently 0.05, I don’t have anything to add from this great write up on the Value Hounds board from a couple months ago: http://discussion.fool.com/gbx-q116-32081523.aspx

Except this other great thread from the same board: http://discussion.fool.com/gbx-valuation-32073227.aspx?sort=whol…

And this article: http://www.fool.com/investing/general/2016/02/09/why-shares-…

And the conf call transcript: http://seekingalpha.com/article/3797306-greenbrier-companies…

And here’s the bear case from a guy who is short GBX. http://seekingalpha.com/article/3960261-greenbrier-next-shoe… Personally, I just don’t buy the drama. Isn’t this priced in already, anyway? Plus, it’s just fear and speculation. Meanwhile GBX’s 2015 sales grew EVERY QUARTER.

Despite (because of) the market paranoia, I bought back in January. I’m comfortable with this as a mid-sized holding, and tempted to add more. Thought I would put it out there. Any thoughts?

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I found some pretty extensive discussion on this board about GBX from April 2015. It was tempting then…well sales have grown a lot since then. And the stock price is less than half what it was.

Thanks Paul, I’ll read those links. I started by reading the short article. Aren’t you worried by the drop in new orders, which are on a pace which is off 68% from last year?

Now I’ll move on to the Pro articles

:wink:

Saul

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Thanks for posting on this and bringing it to my/our attention. I will also dig a bit deeper before/if I start a position.

What jumps out to me is the mismatch on expectations and actual results. I am not sure what that really tells me about market sentiment, but I don’t like it and that usually gives me pause. This usually results in a high beta (volatility) and this is no different. From MF CAPS stats: Beta for GBX is 2.69 and the rest of the sector is 0.36. I am youngish, and have an income to help relieve the stress of volatility, but that is a lot even for me.

Enjoy the ride!

Robert

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Aren’t you worried by the drop in new orders, which are on a pace which is off 68% from last year?

I’ll let the CFO answer that, from the conference call:

The fact that we’ve received 500 units in three months and an additional 2,100 units in a little over a month demonstrates the lumpy nature of orders in our industry.

Basically, I don’t know that it means much. Now if orders stay down all year that would be a thesis-changer. But from the CEO’s comments as well, they just don’t seem too worried. Let me know if you agree after you read the call transcript.

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Another interesting note: 25% of their shares are sold short. That’s definitely holding share price down and could make for a huge payday if/when there’s a short squeeze.

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What jumps out to me is the mismatch on expectations and actual results. I am not sure what that really tells me about market sentiment, but I don’t like it and that usually gives me pause.

As Robert said above, it appears that sales/earnings and stock price are virtually unrelated for GBX. Why is this?

Well, as Saul zeroed in on immediately (no shock there), this stock fluctuates less on trailing earnings and more based on future expectations – and expectations not so much related to guidance for the next quarter, but largely based on orders that are coming in. Until 2014, GBX was trucking along with orders for a few thousand cars each quarter. Then suddenly for a span of four quarters, their orders were over 10k cars, and sometimes more than 15k cars, every quarter.

The stock price started rising during fiscal Q3 of 2014 (end date was 5/31/14) when they announced that big orders were coming in. March 3rd and May 21st they had huge orders of 5600 and 7000 – each more than they usually got in a typical quarter.

These 4 quarters were kind of an unprecedented period, with over 50,000 cars ordered in the span of 1 year. And in the three quarters reported since, orders have only been 5300, 2900, and 500 cars. (With a 2100 car order coming in early in the current quarter, which will be reported on 4/5. Worth noting: no other big orders have been announced.)

A couple questions:

  1. Will any huge orders come in hereafter?

  2. Will GBX enjoy any other continuing impact after the orders are delivered?

I think #1 is a pretty easy who knows. Can’t predict the future. In the call, no one even really asks them too. However, now that they’ve shown they can handle pretty enormous capacity, I wouldn’t rule it out or anything.

But as for #2, there’s a lot of talk about retrofitting cars. This from an analyst (Matt Brooklier), just as an aside at the end of the conference call:

It just seems to me like we’re pushing a lot of potential retrofit work out to 2017, and 2017 could be a very, very busy year, especially if crude prices recover here.

CEO Bill Furman then agreed:

But in 2017 and 2018, they’re going to – there’s going to be rush to the door and that’s when we expect much more robust demand.

I don’t know what that means for the stock price in 2016. It may languish for a year. It may fall further. Or it may steadily rise in anticipation of all of this coming to fruition.

But I do know that it is super cheap right now. I will probably watch and see what happens after the conference call in a couple weeks. Definitely one to consider at this point in their business cycle, because now is when it’s possible to get in on the cheap.

Saul, do you typically just stay away from businesses this cyclical, with sales this lumpy?

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Saul, do you typically just stay away from businesses this cyclical, with sales this lumpy?

It’s against my rules for myself, but I couldn’t resist and took a little one-half-percent position.

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I took a 3/4 % position yesterday.

I am not surprised that you opened a position Saul.

I am glad you did though. It makes me feel better that I did.

Frank :slight_smile:

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Thank you Paul for your excellent post that brings attention to this company.

I bought some yesterday.

Frank.

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I love to see courage. I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.

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Or will Buffett buy them all, Trinity, Westinghouse and the rest all in one go? Could be interesting! Railways are not my thing but on a ten-year view…

Well that’s the problem. What exactly will they be transporting? Tesla batteries?

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Oops, didn’t mean to repeat myself

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Saul, do you typically just stay away from businesses this cyclical, with sales this lumpy?

Not Saul but Denny here! :wink:

Cyclicals, by definition, are not buy and hold, you have to know the industry and you have to recognize the cycles and even experts agree that predicting the cycles is extremely difficult. I had some luck with Peabody Energy (I love the symbol, BTU!) then promptly lost my shirt with another coal outfit which I bought at the wrong turn of the cycle. I now stay away from cyclicals with very few exceptions. My one oil service cyclical is Core Labs (CLB).

In railroads I’ve looked at Genesee & Wyoming Inc. (GWR) which is cyclical but also in acquisition mode. I would buy it for the latter but only after the oil cycle bottoms for sure.

Denny Schlesinger

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I love to see courage. I presume the thing is to ride the momentum for the short squeeze and exit fast with enough money for a few months supply of whisky before everyone realises it’s a value trap.

Strelna,

You never knew this, but even though your post was vaguely at my expense, I think it’s amazing. I go back and read threads sometimes, especially about companies I’ve found and brought to the board, and this post never fails to crack me up.

Thanks,
Bear

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