PWR Holdings (ASX: PWH) is an Australian technology company. PWR focuses on delivering, manufacturing and engineering innovative radiators, oil coolers and intercoolers for racing, military, high-performance cars and automotive.
Despite originating in Australia, PWR is creating a unique reputation throughout the EU and US industries.
Technology is changing rapidly. PWR’s survival depends on their ability to continuously deliver innovative technological solutions to market. Especially with the developments in electric and hybrid vehicles demanding high-quality cooling systems.
World racing teams such as Red Bull Formula 1, Roush Fenway Racing in NASCAR, Red Bull Mobile and V8 supercars use PWR’s cooling systems. Illustrating how PWR’S technology is so high-quality it qualifies for Formula 1 industry. Thus, providing PWR with significant global market potential.
Why did PWH rise by 146% over two years?
PWR’s current share price of $4.77 is nearly double its IPO. However, with limited price sensitive announcements we must delve deeper in the financials to understand why.
PWR holdings are profitable. Indicating PWR operates under a viable, low risk and finically healthy business model. Moreover, PWR’s 2019 profit margins ($14.21 million June) is 0.5% higher than in 2018.
PWR’s revenue is $65.41 million, which is 26% growth from June 2018. Further, cementing the successfulness of PWR’s products in generating revenue.
PWR is in debt of $3.42 million (June 2019). However, with cash of $20.53 million, PWR can service outstanding debt. Moreover, with Equity at 53 Million (June 2019), PWR holds a Debt to Equity ratio of 6.4%. Consequently, reducing the risk of PWR as they rely less on debt to operate.
PWR’s ROE is 26.8%. Which is significantly higher than the industry average of 8.4% (Simply Wall Street). Moreover, PWR grew its ROE with little debt.
Despite PWR’s excellent financials we must examine the negatives (risks).
First, PWR’s Price to Earnings Growth ratio (PEG) is 2.1x. A company. A PEG over 1 is considered overvalued. Thus, making PWR’s PEG ratio of 2.1x financially poor.
While PWH’s P/E ratio of 33.3x is also financially poor. Especially, when compared to the industry average of 15.8x (Simply wall street). It is general knowledge that investors pay more attention to the PEG ratio. Because unlike the P/E ratio the PEG ratio includes expected earnings growth in the calculation.
Is it too late to buy or is PWH’s growth still in initial stages?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
PWR experienced excellent growth in 2019. However, will PWR replicate their financial and industry success in 2020? It depends on PWH’s ability to elevate their global reputation. Because, the more reputable PWR is the more jobs they receive. Ultimately leading to a stronger balance sheet.
From a financial perspective, PWR is an attractive investment. However, more research around the company’s partnerships and job opportunities outside Australia is required.
Investors should monitor PWR’s activity in the racing, military, 4WD and Industrial industries. Once, news about new deals being signed with racing teams or the like arises investors may find the investment more attractive.
Want to learn about another stable ASX stock? Then read our article on Clinuvel Ltd (ASX: CUV)
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The information above should not be taken as financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
Written by Patrick McLoughlin, Associate of YIG.