Shareholders of Wabash would probably like to forget the past six months even happened. The stock dropped 22.7% and now trades at $7.54. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Wabash, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Do We Think Wabash Will Underperform?
Despite the more favorable entry price, we're cautious about Wabash. Here are three reasons we avoid WNC and a stock we'd rather own.
1. Backlog Declines as Orders Drop
Investors interested in Heavy Transportation Equipment companies should track backlog in addition to reported revenue. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into Wabash’s future revenue streams.
Wabash’s backlog came in at $829 million in the latest quarter, and it averaged 36.2% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Wabash, its EPS declined by 39.2% annually over the last five years while its revenue was flat. This tells us the company struggled because its fixed cost base made it difficult to adjust to choppy demand.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Wabash’s $422.8 million of debt exceeds the $91.68 million of cash on its balance sheet. Furthermore, its 37× net-debt-to-EBITDA ratio (based on its EBITDA of $8.88 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Wabash could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Wabash can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Wabash falls short of our quality standards. Following the recent decline, the stock trades at 4.6× forward EV-to-EBITDA (or $7.54 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at the most entrenched endpoint security platform on the market.
Stocks We Like More Than Wabash
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