The American Dream

Written by GSCR Staff   
Friday, 20 December 2013 12:15

The American Dream is not just about social mobility—the idea that anyone can make it—it’s also about physical mobility. If economic opportunities are scarce or we don’t like living in any location, we have “the ability to vote with our feet.” We can simply move to another city or state to pursue happiness. With this in mind, we find General Finance Corporation (NASDAQ – GFN - $6.27), a holding company that helps us realize the American Dream, very attractive at current levels.

It was incorporated in 2005 and is headquartered in Pasadena, California. GFN leases and sells portable storage containers, portable container buildings, and freight containers. It does business in three industries: mobile storage, modular space and liquid containment, which it collectively refers to as the portable services industry. GFN’s two operating subsidiaries, Royal Wolf and Pac-Van, lease and sell their products through 17 customer service centers (CSCs) in Australia, seven CSCs in New Zealand and 27 branch locations across 18 states in the United States and in Alberta, Canada. The company serves various industries, such as mining, road and rail, construction, moving and storage, manufacturing, transportation, defense, retail, education, and services sectors; and small and medium-size entities.

Technically, its stock has good price momentum. The stock price appears to be near the bottom of a rising channel that has been skyrocketing since 2010. Its share price has been outperforming both its industry, Rental and Leasing Services, and the S&P 500 by a wide margin even though the Company has been issuing additional common and preferred stock during this time. Moreover, Wall Street estimates of GFN’s Target Price are 20% higher than the last close.

Growth of $10,000

 

Fundamentally, GFN appears to be undervalued with a price to book ratio of 1.5 versus an Industry average of 2.4 and the S&P 500 at 2.5.

While EPS estimates for the current fiscal year are only up 4.7%, estimates for next year are over 80% higher still. Similarly, while GFN’s price/earnings ratio for the trailing twelve months is over 48, its forward P/E ratio is only 16.1 versus 16.5 for the S&P 500. In other words, we believe that GFN will continue to grow and prosper.

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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