USA Truck, Inc.

USA Truck, Inc. (NASDAQ: USAK) provides transportation and logistics services to diverse customers across the United States and into and out of parts of Canada and Mexico. It carries freight via through-trailer service from its Laredo, Texas terminal. Its operating segments are Trucking and USAT Logistics.

Why Investor's Should Book Profit?

• Weak margin profile: The group posted a lower profitability margin in Q3FY21 than the industry median, which indicates poor operational efficiency and remains a significant concern for the company. Notably, USAK reported its gross margin and operating margin of 43.80% and 4.30%, respectively, significantly lower than the industry median of 55.60% and 11.80%, respectively. In addition, notably, the company reported its net margin of 2.70%, lower than the industry median of 12.60%.

• EBITDA on a downtrend: In the recent quarters, the company reported a slide in its profitability which remains a major concern for the company. Notably, EBITDA margin in Q3FY21 is the lowest in the last four quarters. Notably, the company reported its EBITDA margin of 9.20%, lower than the industry median of 23.60%.
• Significant uptick in stock price: The company's stock price has surged 132.28% in the past twelve months and is currently trading close to the higher end of its 52-week range of USD 8.30 to USD 23.30.
• Hovering near the upper band of the Bollinger band indicator: At the daily price chart, the stock of TTP closed near the upper range of its 20-days Bollinger band, indicting a possible correction from the recent level.

Risks to Watch: A small number of major retail clients account for a large amount of USAK's freight revenue. In FY20, USAT Logistics' top customer accounts for more than 10% of the company's revenue. Any unfavourable developments in the economy that affect these key clients could have a negative impact on the company's bottom line. Furthermore, diesel fuel accounts for the majority of USAK's operating expenses, and its pricing is fluctuating and unpredictable. As a result, any delays in obtaining the requisite quantity or unfavourable pricing could negatively impact the company's overall success.

Outlook: In FY24, USAK aims to generate USD 1 billion in consolidated revenues, including USD 400 million in USAT Logistics revenue. Its EPS is estimated to range from USD 4.25 – 4.50, with a trucking operating ratio of 90% – 92%.

Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation

Stock Recommendation:

It was another outstanding quarter with demand driving robust growth in revenue. The company continue to experience strong organic growth into August. Furthermore, even the technical indicators point towards a bearish trend and the price may correct or consolidate further. Therefore, based on the above rationale and valuation, we recommend a "Sell" rating on the stock at the current price of USD 22.09 on November 12, 2021, at 10.35 ET.

One-Year Technical Price Chart (as on November 12, 2021, at 10.35 ET). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.