RE:RE:RE:RE:RE:Back in after election trade.This is the type of conversation that really makes forums like this useful. I think a crucial component of understanding this company is understanding the cap ex plans going forward. Two approaches to maintenance vs. growth cap ex spend were outlined by Moogul and Undervalue:
- Simply maintain & replace.
- Opportunistic fleet growth.
The conservative side of me agrees with Moogul that maintain and replace is enough and share buybacks are a no brainer at these prices. However, I also agree with Undervalue that if management sees the need to build the fleet with a comfort on winning a decent share the next wave of work, they know the numbers (there is enough cash now and future cash flows to also buyback shares).
It will be interesting to see how the company approaches cap ex in the next couple of years and I believe we will get more colour on their cap ex plans over the next couple of Qs. In my opinion, regardless of the cap ex approach this stock is cheap and with the current backlog of work and work on the horizon, an investment return from today’s price will be attractive with a strong margin of safety (balance sheet). If the capital allocation strategy is nailed, it could be a monster over a long horizon.
The three things that lead me to trusting management to make an strong decision on the cap ex spend: 1) seasoned management team, 2) Frank is an ultimate owner operator (~30%+ ownership) active in day to day operations, and 3) a history of smart cap ex spend.
Also, I will echo Undervalue above, the current market value of the fleet is likely above the depreciated book value. This has been disclosed by the company previously, though it doesn’t form an important part of my investment decision as equipment market values can be twitchy in different market conditions.