After reported disappointing earnings Industrea  (ASX: IDL) was taken out to the woodshed and mercilessly pummelled by investors on Thursday. Industrea shares fell 23 per cent after first half earnings failed to live up to either expectations or last year’s corresponding period.

Net profit of $15.1 million was 14 per cent lower than last year’s $17.5 million, despite revenue and EBITDA being marginally higher than a year ago. The company said a higher tax rate and increased depreciation caused the earnings shortfall.

As both tax and depreciation are easy to forecast investors are right to be sceptical of those excuses. I’m not surprised that investors dumped their shares. Shoot first, ask questions later is often the right approach in these situations, especially when the company has a track record of disappointing investors.

It was only a few months ago at the mid November AGM, that CEO Robin Levison was spruiking 20 per cent revenue growth in 2012. As the first half was two thirds completed at that point, management should have had a good idea of performance and should have informed the market.

Levison is sticking to his guns and stated that the second half will be strong.

“We are confident of achieving a stronger revenue performance in the second half and that full year profit will lift given the underlying strength of the markets we operate in, and the continuing improvements being made to our businesses’ operational efficiencies.”

While the second half may be strong I doubt it can come to the rescue and make those lofty 2012 growth dreams a reality.

I love the smell of opportunity in the morning

The $240,000 question is whether Industrea is now a bargain, or does it smell rotten.

You may recall that Industrea was one of two Australian companies selected by The Motley Fool’s Global Gains team during their visit to Australia about a year ago. The special report is available here and a brief summary is below.

Plans by miners in Australia and China to increase production will drive growth for all three of Industrea’s businesses. The opportunity to sell equipment in China and earn recurring service revenue is particularly promising given China’s need to mine coal safely and efficiently.

This is a niche business with significant growth opportunities and a track record for rewarding shareholders. We’ll be watching Industrea’s profit margin and the way the company manages its balance sheet, but in the meantime, this could be a compelling way to profit from the rising demand for commodities in emerging Asia.

Net margins were crushed this half, falling to 8.6 per cent compared to 13.4 per cent in 2011. That doesn’t bode well for the future, but if management are to be believed it is a temporary fall that will be turned around this half. In light of the recent record, that is a big if!

This isn’t the first time Industrea have overpromised and under-delivered. The company also disappointed investors back in 2009. Back then the initial sell-off was the just the beginning of a long slide in the share price.

Cash flow is also concerning, as despite a handy $24.5 million in operating cash flow, the company spent $37.7 million on investing activities. Most of that was for property plant and equipment, so is an investment in future growth, but in light of the disappointing results it’s worth keeping a close eye on future cash flows to ensure Industrea is once again self-funding (able to grow without extra debt or equity).

Foolish Bottom Line

At under $1 Industrea’s shares appear cheap and are priced as if the company will never grow again. That seems highly unlikely considering the massive growth tailwinds it has behind it. However, with plenty of other opportunities in the market I see little reason to jump in now. Fortune seldom favours the brave in investing, while patience is very rewarding.

If you’re looking for a business we think is worth your consideration, check out The Motley Fool’s Top Stock For 2012. Request your copy of this report, whilst it’s still free and available, by clicking here now.

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Motley Fool Investment Analyst Dean Morel does not own shares in Industrea.

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