PAM Transport Services: Cheap enough for a look (NASDAQ: PTSI)
In such a global economy, there must be an easy and affordable way to transport the various goods to make the economy work. There are a number of companies that are dedicated to providing these services. And one of them that investors should consider is a company called WFP transportation services (PTSI). In recent years, the company has shown some volatility in its financial performance. But the general trend is positive. In particular, the company’s 2021 fiscal year was robust. And while the company’s shares are likely more or less fairly priced against the competition, their price is low enough on an absolute basis to warrant some consideration.
A small freight company
The business model championed by PAM Transportation Services involves the company acting as a dry van carrier that hauls general cargo across the continental United States and into select Canadian provinces. The Company also provides certain transportation services in Mexico through agreements with carriers located there. When I say the company focuses on general cargo, I mean that it provides a wide range of cargo transportation services that help transport auto parts, expedited cargo, consumer goods like bulk cargo. store and manufactured goods, as well as other related products.
Although the company operates in a key segment, its revenue stream is a bit more diverse than that. For example, in its last completed fiscal year, it allocated 76.9% of its revenue to truckload services, excluding fuel surcharges. The remaining 23.1% of turnover, still excluding fuel surcharges, comes from the brokerage and logistics services it offers to its customers. Additionally, although the company has operations spread across the North American continent, it is a US-centric business with 66% of its sales coming from domestic shipments. The remaining 34% of sales come from freight to or from locations in Mexico or Canada.
Between 2017 and 2020, sales generated by PAM Transportation Services evolved within a very narrow range between $437.8 million and $533.3 million. In 2020, sales were $486.8 million. But then, in 2021, revenue surged, hitting $707.1 million. Interestingly, this happened even as the number of kilometers traveled by the company’s trucks decreased from 193.48 million to 182.91 million. Where the company made up for this was in prices and the number of loads its trucks took. In 2021, as an example, the company generated $2.35 in revenue per mile driven. That was up from the $1.75 hit a year earlier. The number of loads for the company increased by 2.1%, from 349,803 to 357,090. As a result of all this, the company’s revenue generated per truck per week jumped, climbing by 30, 2%, from $3,317 to $4,320.
As revenue grew, profitability followed. But, just as with revenues, profits have not always moved in a stable direction. The worst of the past five years for the company came in 2019, when profits were just $7.9 million. The best year, excluding 2021, was 2017, when the company generated revenue of $38.9 million. This was eclipsed in 2021 when the company reported profits of $76.5 million. Less volatile were the cash flows generated by the company, as well as its EBITDA. Between 2017 and 2021, operating cash flow increased from $50.6 million to $101.7 million. Of course, even that wasn’t a perfect uptrend. In fact, between 2018 and 2020, the company experienced sequential declines in cash flow. Meanwhile, EBITDA has been on a general upward trend, rising from $55.9 million in 2017 to $137.7 million in 2021.
By taking this data, we can attempt to price the business. Using 2021 numbers, the company is trading at a price/earnings multiple of 9.4. The price/earnings multiple if we rely on the 2020 figures is significantly higher at 40.4. This should underline just how unreliable this particular metric is when it comes to valuing the business. And it should also make investors realize that buying this company will not be a stable and secure path forward. This is a volatile outlook, they can fluctuate significantly from year to year. But I digress. On a price/operating cash flow basis, the company is trading at a multiple of 7.1. That’s down from the still fairly low 10.6 we get if we rely on 2020 data. And finally, we come to the EV to EBITDA approach. The multiple here for 2021 is 6.4. That compares to the 9.7 we get if we rely on 2020 numbers.
|Society||Prizes / Earnings||Price / Operating Cash||EV / EBITDA|
|WFP transportation services||9.4||7.1||6.4|
|Yellow Company (YELL)||N / A||20.7||5.3|
|ArcBest Corporation (ARCB)||13.4||7.9||5.6|
|American truck (USAK)||8.6||3.6||3.3|
|Knight-Swift Transportation Holdings (KNX)||12.5||9.4||7.2|
As part of this analysis, I decided to compare the company to five other similar companies. On a price-earnings basis, these companies ranged from a low of 8.6 to a high of 13.9. Based on 2021 estimates, only one of the five companies was cheaper than our perspective. The price/operating cash flow approach resulted in a range of 3.6 to 20.7. Here, two of the five companies were cheaper than our target. And finally, we get the EV to EBITDA approach, with a range of 3.3 to 7.2. In this case, four of the five companies were cheaper than PAM Transportation Services.
To take with
Right now, I have to say that I am not at all impressed with the track record achieved by PAM Transportation Services. Although 2021 turned out to be a great year for the company, we cannot count on it as a regular year given the supply chain issues affecting the wider economy. And historical performance from previous years reveals an extremely volatile business from year to year. That said, for the most part stocks look pretty cheap, even if we go back to the numbers generated in 2020. So while investors may not see this as some kind of home run opportunity, it may be worth considering for the right type of investor. This would be someone value oriented who believes current trends will persist for a while and/or someone who doesn’t care about a mediocre company at a decent price.