Knee-jerk reactions by speculators are often ripe for producing long-term, money-making investments. I think I've found an ASX 300 stock that fits the bill.
The stock market is full of emotions. In the words of the OG value investor, Benjamin Graham, "Individuals who cannot master their emotions are ill-suited to profit from the investment process." Fortunately for us, many participants in this arena are unsuited to keeping a level head in the face of fleeting undulations.
Such short-term thinking is why some perpetually buy high and sell low. If you can look at a business as a business, something that has strong and weak times, opportunities begin popping up where others are frantically exiting.
PWR Holdings Ltd (ASX: PWH) is an ASX 300 stock being treated like temporary trash. I think it's a long-lasting treasure.
Bumpy numbers bring the smackdown
Shares in the automotive cooling solutions manufacturer are down 21% in 2024, as shown below. This wasn't always the case…
On 23 February, the PWR Holdings share price hit $12.94, rallying 34% from the end of 2023. Investors were confident, given the company's 12-month trailing revenue of a record $130 million. Net profits were the same, fattening to a record $23.7 million.
What changed?
In my view, there is little change in terms of the long-term business fundamentals of this ASX 300 stock. However, immediate financial figures receive the most attention. In that regard, PWR revealed it expects first-half net profits to dive as much as 67% from last year to between $3.2 million and $3.7 million
As my colleague Bernd Struben noted, the plummeting profit is due to revenue falling faster than costs can be cut. Specifically, earnings from the company's original equipment manufacturer (OEM) segment are forecast to slump 44%, which management attributed to volatility in the electric vehicle market.
I'd buy this ASX 300 stock for big potential
A company's value is mainly a function of its earnings per share (EPS) over the long term. So why would I think this business offers great potential when its profits are set to plunge 67%?
PWR Holdings founder and CEO Kees Weel makes it abundantly clear costs will be addressed. In the release, Weel states:
We are reducing our cost base to be more aligned to the current trading environment while balancing the opportunities we are pursuing in our Aerospace & Defence business, which continues to give us confidence in this market.
Weel has $69 million worth of motivation to make sure he gets it right. Nothing gives me more confidence than a founder-led company with a major chunk of the founder's wealth tied up in the business.
I don't think PWH Holdings is fundamentally flawed. The ASX 300 stock has been punished for basically a supply and demand mismatch. Personally, I see this situation as a normal event for a company selling a high-end product during an economically difficult time.
