REVG - REV Group: Margin Growth Under-Reflected At Current Multiples

2024-05-26 22:57:11 ET

Summary

• REV Group is a specialty vehicles company with a focus on fire, ambulance, and public transport vehicles.
• The company has shown consistent sales growth and increasing earnings over the past decade.
• Management has implemented strategic initiatives to improve capital allocation and increase operating margins, which has positively impacted the company's valuation.

Investment Summary

Regulated, capital-intensive businesses typically hold large investments in long-lived, tangible assets (including their inventories). Often, these assets are partially funded with long-term debt, and returns on equity are subject to whatever leverage these corporations can employ.

The construction machinery and heavy transportation equipment industry is one such domain. The commodity-like economics of the industry means 1) operating margins are thin for most players, 2) those with higher capital efficiency win the race, such that 3) it is the lost-cost provider which often draws customer attention....

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