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Is MLR A Hidden Gem?

MLR has had an upward trending CAGR of >20% for the past 6 years. With a strong showing of ROA >7% and increasing y-o-y, MLR’s ROE of 16% in 2019 is also looking good. Most importantly, MLR has very low debt. What a gem! Without further delay, let’s take a closer look at this company.

HOW DOES MILLER INDUSTRIES INC MAKE MONEY?

MLR is a world leader that provides innovative high-quality towing and recovery equipment worldwide.

WHAT IS ONE THING UNIQUE ABOUT THIS COMPANY?

MLR does not just provide solutions to its customers, but also provides financing services to customers, easing the customer’s capital tension on their purchase of MLR’s towing and recovery equipment.

Apart from that, MLR is also an authorized subcontractor to multiple governments, able to provide equipment and services in the towing and recovery field.

REVENUE TREND

The increase in revenue was primarily attributed to increased demand driven by a strong continuing economic environment in both the domestic (USA) and international markets before the Covid19 pandemic affected consumer sentiments. The company has also seen further growth and forward traction in their “government subcontractor” segment of the business.

EARNINGS PER SHARE TREND

EPS is showing a positive and relatively consistent uptrend for the past 7 years.

Net income has been increasing consistently as the MLR management has been carefully managing its operating expenses to maintain around a 5% pre-tax margin

WHAT HAS IMPACTED THEIR PERFORMANCE RECENTLY? (BASED ON THE LATEST QUARTERLY REPORT)

In MLR’s May 2020 quarter earnings release, YTD Jun revenue dropped by ~27% (Revenue for Q2 alone dropped almost 50%!). However, cash from operations increased 2.5 times. In this uncertain Covid19 times, extra cash on hand is always a good sign.

The slowdown in revenue in 2020 was mainly caused by the Covid19 situation. During the Apr – Jun 2020 period, when the US was battling a spike of Covid19 cases, multiple states across the US were imposing lockdowns that limited MLR’s interaction with their clients. At the same time, MLR’s supply chain in the US was also negatively affected during the various lockdowns, adversely impacting MLR’s production and deliverables.

During such circumstances, we observed that MLR’s cost of operations for the 3 months ending 30 Jun 2020 decreased by ~44%, reflecting enhanced margins from product mix changes. These reduced costs of operations offset the reduced revenues, cushioning the impact of the pandemic on the business.

However, this analyst is pleased to see that, at this critical moment, MLR is still able to collect upon their Account Receivables consistently, providing a reliable stream of income. Furthermore, as mentioned in the Q2 proxy statement, MLR has no single customer with a percentage revenue contribution of greater than 10%. This shows that MLR is not heavily relying on any single customer source for its income.

Finally, it is worth noting that the management has declared a cash dividend of $0.18 per share on 3rd Aug 2020! As a value investor, this analyst is always appreciative of a company committed to supporting their shareholders with dividend pay-outs, especially during this uncertain, pandemic-hit period. It certainly makes MLR an attractive SME stock!

Overall, this analyst personally thinks that MLR is in the good hands of a management that knows what items need to be prioritized. This is especially valuable in this pandemic-crazed uncertain environment. Also, always remember: Cash is King! With the ability to consistently collect on their account receivables, and their ability to increase cash & cash equivalents, MLR is well positioned to navigate through this difficult situation.

To conclude, the lockdown in the US has, since August, slowly started to be lifted, and people are slowly adapting to the new norm. This analyst recommends all value investors to be prudent; Let us take a step back and wait for MLR’s Q3 earnings to confirm our analysis. Caution is the recommended action over entering in the market in a hurry. Furthermore, with the current news that the President of the United Stated is infected with Covid19, who knows – We could potentially be buying this gem at a cheaper price, should Mr. Market react unstably!

Remember, fellow investors, “Be fearful when the market is greedy, be greedy when the market is fearful!”

DISCLOSURE

The above article is for educational purposes only. Under no circumstances does any information provided in the article represent a recommendation to buy, sell or hold any stocks/asset. In no event shall ViA or any Author be liable to any viewers, guests or third party for any damages of any kind arising out of the use of any content shared here including, without limitation, use of such content outside of its intended purpose of investor education, and any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages resulting from such unintended use.

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