Shareholders of Commercial Vehicle Group would probably like to forget the past six months even happened. The stock dropped 55.5% and now trades at $2.25. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Commercial Vehicle Group, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Even with the cheaper entry price, we're swiping left on Commercial Vehicle Group for now. Here are three reasons why there are better opportunities than CVGI and a stock we'd rather own.
Why Do We Think Commercial Vehicle Group Will Underperform?
Formed from a partnership between two distinct companies, CVG (NASDAQ:CVGI) offers various components used in vehicles and systems used in warehouses.
1. Revenue Spiraling Downwards
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Commercial Vehicle Group struggled to consistently generate demand over the last five years as its sales dropped at a 1.7% annual rate. This was below our standards and signals it’s a low quality business. 
2. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Commercial Vehicle Group, its EPS declined by more than its revenue over the last five years, dropping 38.9% annually. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Commercial Vehicle Group burned through $4.32 million of cash over the last year, and its $128.8 million of debt exceeds the $30.89 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Commercial Vehicle Group’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Commercial Vehicle Group until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Commercial Vehicle Group doesn’t pass our quality test. After the recent drawdown, the stock trades at 4× forward price-to-earnings (or $2.25 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment. We’d recommend looking at MercadoLibre, the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Commercial Vehicle Group
The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.
Get started by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.
