I last wrote about PWR Holdings (ASX:PWH) over 18 months ago. It has been a bumpy ride since. At the time the share price was $8.60. It rose to $12.98 in February 2024 before halving to $6.10 in November. At the time of writing it is $7.80. So why the roller coaster?
At the time of the previous article, I referred to a screen built by Stockopedia contributor Roland Head that identifies quality stocks that are strong compounders. (Building a screen to find Compounding Quality stocks). PWR met the criteria for this screen at the time. It still does.
Criteria | Threshold | PWH Jun 23 | PWH Jan 25 |
QualityRank | 80 | 92 | 96 |
Long-term ROCE | 18% | 31.5% | 30.7% |
TTM ROCE | 15% | 30.2% | 30.0% |
Operating margin 5 yr avg | 10% | 28.7% | 27.4% |
Operating margin TTM | 10% | 26.4% | 25.2% |
Net margin 5 yr avg | 8% | 20.9% | 19.6% |
Net margin TTM | 8% | 19.5% | 17.8% |
OCF / EPS | 0.8 | 0.9 | 1.3 |
Avg FCF (long term) / Assets | 8% | 14.6% | 13.8% |
Sales CAGR 5 yr | 0% | 16.0% | 16.3% |
Sales TTM / Sales Prior TTM | 5% | 23.5% | 17.8% |
Debt to assets | <50% | 16.7% | 11.4% |
Interest cover | 10x | 100x | 121x |
Whilst most metrics have declined marginally, it is still a very high quality stock as reflected in the Quality rank of 96 and the sales and profitability metrics continue to compound.
First some background. PWR is a manufacturer of advanced cooling systems. They have traditionally been focussed on motorsport and are the dominant provider of cooling systems for Formula 1 with all teams using their cooling products. They also work with Supercars, touring cars, rally cars, Nascar and Indycar teams all over the world.
Over recent years they have been diversifying their offerings, and now generate about half their revenue outside Motorsport, from supplying cooling solutions to car manufacturers (OEMs), the automotive aftermarket and aerospace and defence.
Source: PWR Holdings, FY2024 Annual Results Presentation, 15/8/24
The share price climbed strongly during the second half of 2023 on the back of record revenue and profit for the FY23 year as revealed in August 2023. This included strong revenue growth across each of the segments running from 12% for the Automotive aftermarket to 48% for Aerospace and defence. Importantly there was a lot of optimism about the outlook and a strong pipeline…
