Spartan Motors Inc. (SPAR) - Motoring Higher Or Accelerating Toward A Cliff?
Spartan Motors Inc. (SPAR) is a custom motor vehicle chassis and body design manufacturing company headquartered in Charlotte Michigan. The company specializes in the design and manufacturing of emerging rescue vehicles, military vehicles and RVs. The company reported first quarter 2009 results before the market opened on April 28th, which showed a drastic decline in both military vehicle sales as well as the recreational vehicle sales, in part due to the economic downturn. With the company being well diversified into multiple vehicle lines, the emergency vehicle segment of the company picked up some of the revenue slack with increasing demand for fire truck chassis.
From a technical analysis point of view SPAR, is currently in an overbought position. The stock has risen by more than 230 percent since an uptrend was started back in late February, with SPAR breaking through the Keltner Channel to the upside in the beginning on March and never looking back. Since breaking out of the Keltner Channel the stock has increased by 90 percent, which is between 2 and 3 times higher return than historically occurs when such a breakout occurs with this stock. The RSI curve is currently showing that SPAR is in an overbought situation and has been there since the middle of March. The volume indicators, while showing good steady volume, are not indicating anything extremely unusual during the stock’s recent upward movement. SPAR is currently well above all of the various length price moving averages which I look at ranging from a short term 10 day moving average to a long term 200 day moving average.
From a fundamental investment stand point Spartan Motors is in a relatively good position, having a strong balance sheet and almost no reliance on long term debt. In showing balance sheet strength SPAR has a current asset to current debt ratio of 2.61 and a total assets to total liabilities ratio of 2.83. Management is being very effective when measured by both Return on Assets (ROA) and Return on Equity (ROE) for the trailing twelve months ending 3/31/09, with SPAR running an ROA of 16.11 percent and an ROE of 28.49 percent. Profit margins remain strong at 5 percent and operating margins are holding steady a little over 8.8 percent. Spartan Motors income statement however shows a company which has revenues dropping at an alarming rate led by a 91.7 percent year over year drop in sales in the RV segment of the business through March 31 2009. Sales of military vehicles have also dropped by 65 percent on a year over year basis through March 31 2009. Both of these segments are likely to continue to have very hard times in the coming few months as US consumers continue to pull back on purchasing large ticket items such as RVs and the military spending is likely to decrease as the new administration adjusts the various military deployments of the US military. Overall I do not see the sales in the emergency vehicle segment being able to make up the short falls in sales which are currently being experienced in the other markets which will continue for the next few quarters.
I do not think that the current stock price and trend is sustainable; I feel that the stock will break down in the near future, going down to at least the $5 per share range. As the difficult economic situation continues SPAR will continue to see revenues slide, possibly making $5 per share to high of a price to pay for a very uncertain future.
