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Mean reversion candidate: Shiloh Industries (SHLO)


SHLO is up 59.62% for 2010 vs. the S&P 500 Index, down 7.57%

Mean reversion candidate: Shiloh Industries (SHLO)

Company Overview

Shiloh Industries (SHLO) is a manufacturer of first operation blanks, engineered welded blanks, complex stampings and modular assemblies for the automotive, heavy truck and other industrial markets.

Fundamentals

Shareholder Equity: Shiloh has 16.5 million shares outstanding, of which 5.2 million are floating shares (available for the public to purchase). Institutions own 22.94% of the stock.

Financial Strength: Shiloh has a debt to equity ratio of 0.35. Compared to its competitors, the company has been fairly aggressive in using debt to finance growth.

Valuation: SHLO was not profitable for the previous 12 months, so a price/earnings ratio does not apply. Based on its price/cash flow ratio of 3.57, the shares are inexpensive compared to the miscellaneous fabricated products industry average of about 10.

Profitability: Shiloh’s gross profit margin is only 4.54%, less than 91% of other companies in the industry.

Management Effectiveness: With a return on equity of -2.77%, Shiloh has been able to reinvest less efficiently than 72% of its competitors.

Growth Rate: The company’s growth rate is better than 83% of the companies in its industry.

Analyst Ratings: Thomson Reuters has an “outperform” rating on the stock. Standard and Poor’s rates the shares as a “hold.”

Performance

The shares of SHLO have performed very well in 2010, especially since early Arpil. As of Wednesday’s close the stock is up 59.62% while the broad market as measured by the S&P 500 index is down 7.57%.

Short-Term Reversion to the Mean

U.S. Airways closed at $8.46 a share on Wednesday after reaching a high of 10.39 on June 15. SHLO is oversold within of a bullish trend and therefore, a candidate for a reversion to the mean rally. A trader might buy on Thursday at 8.46 or better with a stop loss of 0.72 below the entry price. The target price is 9.90 (based on a 8.46 entry price).

For more information visit Grail Investing at grailinvesting.com.

Note: GrailInvesting.com and all services provided on its web site are for educational purposes only. Nothing contained within its Web site should be interpreted as a recommendation to purchase, sell or hold any security at any time. Always consult with an investment advisor familiar with your financial goals before making any investment or trading decisions.

 

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