{"id":48,"date":"2010-04-07T17:07:20","date_gmt":"2010-04-07T21:07:20","guid":{"rendered":"http:\/\/www.credittrends.com\/blog\/?p=48"},"modified":"2010-07-21T13:33:52","modified_gmt":"2010-07-21T17:33:52","slug":"underperformance-of-high-capital-intensive-firms","status":"publish","type":"post","link":"https:\/\/www.credittrends.com\/blog\/2010\/04\/07\/underperformance-of-high-capital-intensive-firms\/","title":{"rendered":"Underperformance of High Capital Intensive Firms"},"content":{"rendered":"<p>Capital intensive firms have had a rough time of it the past five years. Not only has business slowed, but lots of property, plant and equipment (PPE) means lots of debt, not all of which appears on the balance sheet. Nevertheless, debt, like operating leases and that associated with special purpose entities, represents legal obligations that demand repayment.<\/p>\n<p>The chart below shows the five-year performance of firms which have gross PPE at least three times that of their positive shareholders equity, assets of at least $500 million, and a market value of at least $250 million.<\/p>\n<div class=\"mceTemp mceIEcenter\"><a href=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/04\/High-PPE-Portfolio-Performance-04-21-2010.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-1121 lazyload\" title=\"High PPE Portfolio Performance - 04-21-2010\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/04\/High-PPE-Portfolio-Performance-04-21-2010-300x217.jpg\" alt=\"\" width=\"300\" height=\"217\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" style=\"--smush-placeholder-width: 300px; --smush-placeholder-aspect-ratio: 300\/217;\" \/><noscript><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-medium wp-image-1121\" title=\"High PPE Portfolio Performance - 04-21-2010\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/uploads\/2010\/04\/High-PPE-Portfolio-Performance-04-21-2010-300x217.jpg\" alt=\"\" width=\"300\" height=\"217\" \/><\/noscript><\/a><\/div>\n<p>\u00a0<\/p>\n<p>While the chart shows these firms have had, as expected, negative relative performance, there is now reason to believe, based on CT Capital&#8217;s cash flow\/cost of capital models, many of the set are primed to recover ground, the extent of which is dependent on their upcoming ability to generate growing free cash flows.\u00a0 Others, especially, when off-balance sheet debt is included, appear to offer little in the way of potential return to equity holders.<\/p>\n<p>As with all bull market runs, investors look for laggards, and especially investment managers who make a habit of accepting high risk hoping to show strong catch-up investment performance.<\/p>\n<p>The catchword is to be very careful with this group; yet quite a few names appear to offer excellent relative value.<\/p>\n<p>However, if the industries in which these companies operate do not grow as expected, their operating and financial leverage could result in financial failure or extreme loss of market value.<\/p>\n<p>For information on the study please email <a href=\"mailto:kenhackel@ctcapllc.com\">kenhackel@ctcapllc.com<\/a> and look for \u201cSecurity Valuation and Risk Analysis: Assessing Value in Investment Decision-Making\u201d later this fall from McGraw-Hill.<\/p>\n<p>Kenneth S. Hackel, C.F.A.<\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/04\/07\/underperformance-of-high-capital-intensive-firms\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p><div class=\"tweetthis\" style=\"text-align:left;\"><p> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Underperformance+of+High+Capital+Intensive+Firms+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D48\" title=\"Post to Twitter\"><img decoding=\"async\" class=\"nothumb lazyload\" data-src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" \/><noscript><img decoding=\"async\" class=\"nothumb\" src=\"http:\/\/www.credittrends.com\/blog\/wp-content\/plugins\/tweet-this\/icons\/en\/twitter\/tt-twitter.png\" alt=\"Post to Twitter\" \/><\/noscript><\/a> <a class=\"tt\" href=\"http:\/\/twitter.com\/home\/?status=Underperformance+of+High+Capital+Intensive+Firms+https%3A%2F%2Fwww.credittrends.com%2Fblog%2F%3Fp%3D48\" title=\"Post to Twitter\">Tweet This Post<\/a><\/p><\/div><!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>Capital intensive firms have had a rough time of it the past five years. Not only has business slowed, but lots of property, plant and equipment (PPE) means lots of debt, not all of which appears on the balance sheet. Nevertheless, debt, like operating leases and that associated with special purpose entities, represents legal obligations [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n<p class=\"facebook\"><a href=\"http:\/\/www.facebook.com\/share.php?u=https:\/\/www.credittrends.com\/blog\/2010\/04\/07\/underperformance-of-high-capital-intensive-firms\/\" target=\"_blank\" title=\"Share on Facebook\">Share on Facebook<\/a><\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-48","post","type-post","status-publish","format-standard","hentry","category-general"],"_links":{"self":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/48","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/comments?post=48"}],"version-history":[{"count":0,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/posts\/48\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/media?parent=48"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/categories?post=48"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.credittrends.com\/blog\/wp-json\/wp\/v2\/tags?post=48"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}