STS – superstock

Now this was one of the first few stocks that i had covered. It had great growth 2 quarters ago.

Unfortunately i could not recover my analysis and notes on the stock, after i restarted my blog. This was the only post. I remembered entering on huge volume expansion and because the stock broke an important resistance point at 8.5

https://youngtraderjournal.wordpress.com/2016/04/30/sts-35-profit/

Earning Winner

Supreme Industries (NYSEMKT:STS): Q2 EPS of $0.48 beats by $0.16.

Revenue of $92.9M (+12.5% Y/Y) beats by $3.78M.

Diluted earnings per share rose 84.6% to $0.48 per share, up from $0.26 per share in the second quarter of 2015.

Demand for medium-duty work trucks remained solid and Supreme’s growth rate in the second quarter continued to outpace industry expansion.

The story starts 2 Quarters Ago

“Our order backlog increased to just under $100 million by the end of December. This is 32% higher than at the end of September of 2015 and up 23% from the end of 2014”

Management says that backlog increase mainly compromises of retail truck rather than fleet which was stagnant and in the past 2 quarters mentioned specifically that favorable mix of retail trucks helped with margins expansion.

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Current quarter

True enough and sticking with past trends  “The 2016 gross margin expansion was the result of a higher mix of retail sales and better overhead absorption”

 

Second-quarter gross margin widened to 24.1%, compared with 18.7% in 2015’s second quarter. Gross Margins for the previous 2 quarters were, 21.8% and 21.7%.

Just very strong operating leverage that reduces average cost, along with increase in revenue (stronger execution from sales team) , that led to the explosive eps growth. This is the ideal situation that minervini and jesse stine likes.

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What I dont like

Seasonality – This is seasonally STS best quarter, meaning that next few quarters will have negative eps growth on a qoq basis.

This stock did not react as well as i thought it would post-earnings, but i figured it was because of high price x float numbers, which means that buying pressure has to be higher, compared to low float earning winners this year like JVA, PDEX. Will wait and see how this one fares over the next few days.