Douglas Dynamics has been treading water for the past six months, holding steady at $42.31. The stock also fell short of the S&P 500’s 13.9% gain during that period.
Given the weaker price action, is now a good time to buy PLOW? Or should investors expect a bumpy road ahead? Find out in our full research report, it’s free.
Why Does PLOW Stock Spark Debate?
Once manufacturing snowplows designed for the iconic jeep vehicle precursor, Douglas Dynamics (NYSE: PLOW) offers snow and ice equipment for the roads and sidewalks.
Two Things to Like:
1. Encouraging Short-Term Revenue Growth
Long-term growth is the most important, but within industrials, a stretched historical view may miss new industry trends or demand cycles. Douglas Dynamics’s annualized revenue growth of 10.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated. 
2. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Douglas Dynamics’s margin expanded by 11 percentage points over the last five years. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. Douglas Dynamics’s free cash flow margin for the trailing 12 months was 7%.
One Reason to Be Careful:
Low Gross Margin Reveals Weak Structural Profitability
Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.
Douglas Dynamics has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 25.6% gross margin over the last five years. That means Douglas Dynamics paid its suppliers a lot of money ($74.40 for every $100 in revenue) to run its business.
Final Judgment
Douglas Dynamics has huge potential even though it has some open questions. With its shares underperforming the market lately, the stock trades at 13.3× forward P/E (or $42.31 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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