Q: Hi, I would appreciate if you can provide your thoughts/analysis of Exco Technologies.
5i Research Answer:
XTC is a small-cap company that provides automobile components and equipment. The company’s revenue growth over the years has been cyclical, but on average, topline growth over the last five years was around 7% per year. The company also has a moderately leveraged balance sheet for a cyclical business, with net debt/EBITDA of around 1.7x.
XTC is trading at 6x, which looks cheap, but it is cheap for a reason. The business is not that attractive given its cyclicality and dependence on the Original Equipment Manufacturer (OEM) cycle. In addition, uncertainty around tariffs and a weak economy makes XTC’s earnings outlook more uncertain. We think there are better opportunities in the market.