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RUSH.A - Rush Enterprises


walkie518
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This stock seems ridiculously cheap on so many different metrics. 

 

Historically, this has seemed to be a very low net margin business (GAAP).  However, when reviewing cash flows, it looks like GAAP net income is understated and cash on cash returns are much higher.

 

What I don't understand is why it's so cheap?  There are so many tailwinds to being in the business of selling trucks (and tractors) that the market should appreciate? 

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Market Cap: 42.51 * 41m shares out = $1.74B

 

GAAP Net Income: $172,000,000 (p/e = 9.9x)

 

$152,737,000/$1,740,000,000 = 8.8x cash from operations

 

$1,740,000,000/$1,040,373,000 = 1.67x book

 

2017 showed revenue growth of 11.8% over 2016

 

Mix of business is mostly sales of new/used vehicles, which is lower margin but provides support to parts and service business.

 

This business is one of the few that made money during the recession due to its parts business. 

 

Revenue growth might be unsustainable in the long-term, but there should be some runway. 

 

Figures from the following:

https://www.sec.gov/Archives/edgar/data/1012019/000117184318001150/exh_991.htm

 

 

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Why would you ever consider buying RushA when RushB has the voting rights and is trading at a discount?

 

I have owned the Bs for a long time but have always had a hard time determining how to handle the floorplan financing from a valuation perspective.  I think it is correct to exclude it but include the associated interest expense in EBITDA and would be interested to hear how others treat floorplan.

 

 

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b is certainly cheaper than a; however, a shares trade while b shares are sleepy... class b only trades 10,000 shares per day on average while class a trades 350,000 shares per day

 

as for the vote, class a shares do have voting rights (albeit 1/20th that of class b); however, Marvin Rush owns 5.2m shares of the class b, or 35% of voting power...founder's right to separate share classes to retain control?

 

today the difference in value between class a and b might be ~5%, but I would take the higher price in exchange for ease of liquidity...what if I'm wrong or Rush dies?

 

the company tends to buy back the class b shares rather than the class a...this is clearly in Rush's best interest rather than class a shareholders...perhaps collecting a lot of class b might be an interesting proposition provided there is enough floating to make a mark?  Rush owns 43.5% of all of the class b shares though with the second largest owner being Gabelli/GAMCO at only 930k shares...

 

At the same time, all of the company's directors and employees who are eligible to participate are given or buy class a, not class b. 

 

Is Rush going to roll them under the bus or is it that he wants to control the company? 

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the repurchase of the B shareholder actually benefits all shareholders as it costs less to buy the same number of shares.  I have seen other examples (most recently Forest City) where the control shares or shares with the voting rights actually get taken out at a premium. 

 

Some value guys used to pitch buying the Bs and shorting the As to take advantage of this pricing arbitrage but I would rather just own the Bs as I never saw the catalyst.

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