Over the past six months, Wabash’s stock price fell to $8.90. Shareholders have lost 12.6% of their capital, which is disappointing considering the S&P 500 has climbed by 25.5%. This 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? Get the full stock story straight from our expert analysts, it’s free for active Edge members.
Why Do We Think Wabash Will Underperform?
Even though the stock has become cheaper, we're cautious about Wabash. Here are three reasons there are better opportunities than 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 $1 billion 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
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Wabash, its EPS declined by 22.3% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking 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 $437.8 million of debt exceeds the $57.42 million of cash on its balance sheet. Furthermore, its 8× net-debt-to-EBITDA ratio (based on its EBITDA of $48.73 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
We cheer for all companies making their customers lives easier, but in the case of Wabash, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 6.7× forward EV-to-EBITDA (or $8.90 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. Let us point you toward the most dominant software business in the world.
Stocks We Like More Than Wabash
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