YRC Worldwide Inc (NASDAQ:YRCW) is a company that provides regional transportation services through trucks, tractors and similar heavy-duty vehicles. Prior to a 1 for 25 reverse stock split, it was a wildly popular stock to trade by day traders, value investors, penny stock pickers and other technical traders. Its price is down over 99.7% from its 2007 highs as the US recession and high debt levels have badly hurt the stock. The cheap price relative to its former highs attracts value investors; however I will compare their data to data of other truckers to see how they measure up. The companies I will compare YRCW to are:
Arkansas Best Corp NASDAQ:ABFS
Con-Way Inc NYSE:CNW
JB Hunt Transport Services Inc NASDAQ:JBHT
Landstar System Incorporated NASDAQ:LSTR
Old Dominion Freight Line Inc NASDAQ:ODFL
Werner Enterprises Inc NASDAQ:WERN
Price to Book Value
YRCW has a book value per share of -$1.71 and therefore does not have a Price to Book Value that makes sense. That means if the company was forced to liquidate tomorrow and received at cost value for their assets (a very unlikely scenario) their shareholders would be completely wiped out and even their debt holders would not get their full money back. Using this metric as a measuring stick, no value investor could justify buying the stock in this state. The company's only value is in their perceived ability to turn their operations around. The P/B of the other players in the industry rank as follows:
Price to Earnings
YRCW does not currently have any earnings. Their losses continue to erode their book value. ABFS and CNW also have negative earnings. The remaining 4 company P/E ratios are as follows:
Price to Sales
This is the metric that points to some great value in YRCW. Their P/S is 0.04, which is 10 times more undervalued than their next closest competitors. They have no problem generating revenue relative to their stock price. What YRCW must do is greatly reduce their expenses, particularly General & Administrative expenses in order to pull a profit and take advantage of their superior P/S metric. The rest of the industry is as follows:
Profit margins are very thin for the truckers. There is a fine line between being profitable and teetering on the edge like YRCW. The company currently has a -10.44% profit margin. This is not impossible to overcome; however given the nature of the industry it is a challenge and as mentioned before they need to make drastic cuts to G&A expenses to make it happen. Industry metrics are as follows:
Debt to Capital
Given the thin profit margins in the industry, it is imperative that a company is well-capitalized in order to fend off a downturn. YRCW does not fit this description since they have a negative book value so their debt is more than their assets and their debt to equity ratio does not make sense. Note that WERN has no long term debt on its balance sheet. Their profit margins are not boosted by the leverage of debt nor would they be subject to a similar situation YRCW finds itself in because of it. Also note that while ABFS has the same profitability issues as YRCW, their much stronger balance sheet has kept the stock from going into a freefall seen in YRCW since 2007.
The current ratio is another ratio to measure a company's liquidity where you measure their short term assets vs their short term liabilities. YRCW has a ratio of 0.8. While this is not good, it is actually not bad considering that they have more debt than assets overall. Their relative good current asset position compared to other companies with similar bad balance sheets has likely kept them out of bankruptcy protection as debt holders play a wait and see approach to their operations. Their current ratio is not too out of line from the other players, although WERN is clearly superior by a fair margin on the safe end. The other companies are as follows:
YRCW's very undervalued P/S and reasonable Current Ratio makes the company a somewhat viable although very risky investment choice. Their financial position is further complicated by the fact that they are involved in a legal battle with ABFS. There are far safer choices within the industry like WERN, but they are still not nearly as bad off as Blockbuster, General Motors, Lehman Brothers and other household names that have fallen away over the past 2 years. Investors must exercise great caution in any investment choice, but this is particularly true for YRCW.
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Disclaimer: I do not own any of the companies analyzed in this article. All financial information was taken from TD Waterhouse and Yahoo Finance as of November 12, 2010.
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