Zeroing In On An Ag Stock

October 14, 2010


For one thing, Lindsay's trailing 12-month gross margins—at 26 percent—are better than big-league Caterpillar's (NYSE: CAT), as are its operating and net margins.

The company's 28 percent payout ratio may afford investors a 0.7 percent current dividend yield, but the payout lessens Lindsay's ability to compound its return on equity. That could be a drag on the company's future value.

On the cash-flow front, Lindsay's fairly efficient. The company converts 90 percent of its operating income into cash. To boot, Lindsay utilizes its capital efficiently. Its return on capital employed is nearly 13 percent, a figure well above its nearest competitor.

Now, with all that good news, you'd think there's nothing but blue sky above Lindsay. Well, remember that daylight above the stock's current price? That could be overhanging supply. As prices rise, so too does the risk that old long positions bail out.

In fact, there's some indication of that in the stock's money flow index. The near-vertical price ascent this week was accompanied by a net outflow of capital.


LNN Market Price And Money Flow

LNN Market Price And Money Flow


Worse still are the vultures overhead. Of all domestically traded MOO components, LNN has the highest short ratio: 15-to-1. Somebody's banking B-I-G on Lindsay taking a tumble.

It's not you, is it?


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