Wabash (WNC): Buy, Sell, or Hold Post Q4 Earnings?

Over the past six months, Wabash’s shares (currently trading at $10.60) have posted a disappointing 5.1% loss, well below the S&P 500’s 6.2% gain. This was partly driven by 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? See what our analysts have to say in our full research report, it’s free.

Why Do We Think Wabash Will Underperform?

Despite the more favorable entry price, we're cautious about Wabash. Here are three reasons why WNC doesn't excite us and a stock we'd rather own.

1. Backlog Declines as Orders Drop

In addition to reported revenue, backlog is a useful data point for analyzing Heavy Transportation Equipment companies. 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 $705 million in the latest quarter, and it averaged 28.7% 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. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Wabash’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

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 burned through $54.26 million of cash over the last year, and its $456.2 million of debt exceeds the $31.92 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Wabash’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Wabash until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

We see the value of companies helping their customers, but in the case of Wabash, we’re out. After the recent drawdown, the stock trades at 35.2× forward EV-to-EBITDA (or $10.60 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward one of our all-time favorite software stocks.

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