Street Sweeper Sees 'Titanic' Downside Risk At Titan Machinery

• In an article published Tuesday, The Street Sweeper’s Senior Editor, Sonya Colberg, explained why she sees “Titanic Downside Risk” at Titan Machinery Inc. TITN.
• “As it struggles to steer around revenue and cash flow icebergs, Titan Machinery is beginning to look less like a league of strong mythical Greek gods … and more like the ‘unsinkable’ Titanic,” she noticed.

Titan is a micro-cap North Dakota-based operator of dealerships focused on the sale of agricultural and construction equipment in the U.S. and Europe. Over the past few of months, its stock has been quite volatile, surging and declining, even though sales have been sluggish – to say the least.

For instance, in the second quarter, the company delivered revenue of $334 million, down 25.9 percent year-over-year. According to Thomson Reuters, this was the biggest revenue drop in the entire agricultural and construction machinery industry. Earnings were also quite bad at zero. Moreover, Colberg noted, “That $0.00 in earnings caps off eight straight periods of negative earnings.”

The analyst continued, “The recently trumpeted deal with money-losing, 98-cents-per-share Intellinetics is just more evidence of Titan’s desperation.”

She then highlighted some of Titan’s biggest problems:

• Losses were extremely misstated, but the 10-Q was never amended.
• The President and CoFounder, Peter Christianson left the company, but a lot of people did not notice it.
• “Related-party connections potentially draining $100 million-plus from Titan, while benefiting certain insiders.”
• The company faces the industry’s worst inventory buildup, which is, in time, contributing to the accumulation of more than half-a-billion in debt.
• As the company struggles to pay down its debt, layoffs and store closings have been a constant -- and are expected to continue.
• Struggles to pay off floor plan debt; lay-offs and store closings likely to continue
• The company has a “history of providing guidance; revising guidance and then missing numbers significantly”
• Most Wall Street analysts would not recommend buying this stock.
• Titan stands among its industry’s worst performers

So, to conclude Colberg explicated that, while Titan has commanded a market cap of roughly $265 million, “its business recently created a cash flow of just $171,000. Indeed, the cash in its fraying pocket declined about 25 percent to $95 million in just six months. And those cash concerns merely top off the inventory disaster, executive enrichment, misstated losses and other issues…”

“Titan is vainly trying to bail and still navigate overwhelmingly frigid, treacherous waters,” she continued, adding that she believes “a very generous near-term valuation for Titan would be $4 per share.”

Disclosure 1: The owners of TheStreetSweeper hold a short position in TITN and stand to profit on any future declines in the stock price.

Disclosure 2: Javier Hasse holds no positions in any of the securities mentioned above.