Insiders at Rev Group (REVG) are taking on the market by buying after a significant price drop in this stock, explains Michael Brush, a specialist in insider activity and the editor of Brush Up on Stocks.
The company sells specialty vehicles like firetrucks, school buses, commercial vehicles and RVs. The stock may have tanked in part because management mentioned it is grappling with supply shortages of materials and chassis.
This seems like a fixable, or at least a one-off, problem to me which will go away as supply chains adjust coming out of the pandemic. Insiders sure think so. They were substantial buyers in the pullback, and one of them has a good record.
REVG just reinstated its dividend of 20 cents a share, which works out to a 1.2% yield. This is a nice little kicker at a company that has cyclical and consumer exposure, both important factors for investors right now.
Taking a closer look, the firm sells specialty vehicles and aftermarket parts and services. The company has three segments: fire and emergency, commercial, and recreation.
It sells fire trucks, ambulances, fire apparatus, school buses and transit buses in what I will call the public sector division; terminal trucks (which move around large vehicles in yards) and industrial sweepers in the commercial division; and RVs in the recreation division.
Several of its brands pioneered their specialty vehicle categories and date back more than fifty years. So it has brand power, which helps. In most of its markets, it has first or second place for market share. About 62% of sales come from products where it has this kind of share position.
Products are sold to governments, industry and consumers. In short, this company has a mix of fairly steady government demand for stability, and industrial and consumer exposure for cyclical upside. The company is also growing by acquisition. But it is doing so responsibly. It pays down related debt pretty quickly.
Besides supply shortages, the company is grappling with raw materials inflation. But it has offset this to a large degree with price hikes of its own.
The company looks like it just posted a really awesome quarter with 18% sales growth. But like the headline inflation numbers, this is a little deceptive because it comps a depressed Covid quarter.
To get around this, I comp to 2019. Here, growth is still ok. Sales grew 4.6% over the same quarter in 2019. That is a little better than the four-year CAGR from the end of 2016 of 4.3%.
Sales of fire and emergency vehicles were up 6.3%. Commercial was down 31.3%. The recreation segment was up 108.7%. This shows there is room for a lot of improvement in the commercial space, which makes sense because this is a cyclical play. In RVs, the company took market share. The company just upped its full year sales guidance to 10% growth.
REVG recently changed its capital structure by converting to an asset-based loan revolving credit facility, from a term loan. This will bring down interest costs.
Tactics: Consider buying at current levels. There was a sizable $800,000 broad cluster buy here that included the CEO, CFO, an officer and the general counsel, who has a good record. It looks like a sold buy. Our buy limit for conservative buyers is $15.90.
