Cooper-Standard Holdings Inc. (NYSE: CPS) has been attracting attention from Reddit and Mr. Market in recent months.
The share price has grown over the past year. Mr. Market paid $9.58 for Cooper-Standard (CPS) shares on 15 May 2020 and $31.69 for CPS on 17 May 2021, for instance. Predictably, there is now some meme talk about Cooper-Standard on Reddit.
So what is Cooper-Standard and why is Reddit interested in it? Cooper-Standard is a manufacturer of auto components with operations in 21 countries. Interestingly, Cooper-Standard manufactures both auto parts and the raw materials for vehicle components.
What is Cooper Standard?
Cooper-Standard’s products include Fortrex. Fortrex is an elastomer, a material that is elastic.
That means they can make stuff that needs to bend out of Fortrex. Such as the hoses in an internal-combustion engine or a floor mat. Cooper-Standard claims “Fortrex™ is inherently colorless and stable against UV exposure and most chemicals.” They also claim Fortrex has a “low carbon footprint.”
The value of Fortrex is obvious. Automakers will need something like Fortrex on electric, gasoline, and diesel vehicles. Obviously, petrol and diesel vehicles will need more Fortrex because internal combustion engines contain hoses.
In addition, Cooper-Standard (NYSE: CPS) manufactures brake components which they could use on electric vehicles. Other Cooper-Standard products for which there could be wide demand are aviation flooring and rubber sheeting.
Cooper-Standard polymers include rubber, silicone, plastic, and Fortrex. Thus, Cooper-Standard could manufacture many components for electric vehicles.
Will the Auto-Market Recover?
My guess is that Cooper-Standard (CPS) investors suspect the auto market will recover as the pandemic winds down.
There is some data to show auto sales are recovering. For instance, Goodcarbadcar estimates year-to-date Chrysler sales grew by 32.69% between 3 May 2020 and 3 May 2021.
Similarly, Acura sales rose by 32.80%, Chevrolet sales rose by 8.01%, Buick sales rose by 35.09%, GMC sales rose by 108.12%, Hyundai sales rose by 39.53%, Toyota sales rose by 17.66%, Tesla sales rose by 25%, and Ram sales rose by 15.97% in the same period. Thus auto sales are rising.
However, year-to-date vehicle sales are falling at some companies, Dodge sales fell by -27.82%, and Volkswagen sales fell by -17.67% between 3 May 2020 and 3 May 2021. Thus auto sales will recover as the world gets vaccinated.
Does Cooper-Standard Make Money?
Thus, Cooper-Standard’s potential market could grow but does it make money? The answer is no.
Cooper-Standard Inc. (CPS) reported a quarterly operating loss of -$11.69 million on 31 March 2021. The quarterly operating loss shrank from -$114.31 million on 31 March 2020.
However, Cooper-Standard’s quarterly revenues grew from $654.89 million on 31 March 2020 to $668.97 million on 31 March 2021. In contrast, the quarterly gross profit rose from $38.28 million on 31 March 2020 to $68.29 million on 31 March 2021.
On the positive side, Cooper-Standard’s revenues grew by 2.15% in the quarter ending on 31 March 2021. Unfortunately, Cooper-Standard experienced five straight quarters of revenue growth between the last quarter of 2019 and 31 December 2021.
Notably, Stockrow estimates Cooper-Standard’s revenues shrank by -55.48% in the quarter ending on 30 June 2020. Consequently, I think it could take years for Cooper-Standard to recover from COVID-19.
Does Cooper-Standard Generate Cash?
Frighteningly, Cooper-Standard (CPS) burned cash over the past year. For instance, Cooper-Standard reported a negative quarterly operating cash flow of -$7.08 million on 31 March 2021.
However, Cooper-Standard reported a quarterly operating cash flow of $99.70 million on 30 September 2020. That cash flow rose from -$124.20 million on 30 September 2020 and -$2.03 million on 31 March 2020.
In contrast, Cooper-Standard reported a quarterly ending cash flow of $406.89 million on 31 March 2021. The quarterly ending cash flow rose from -$21.59 million on 31 December 2020 and $303.79 million on 31 March 2020.
Cooper-Standard borrowed some money in 2020. It reported a quarterly financing cash flow of $232.26 million on 30 June 2020. The quarterly financing cash flow fell to $1.29 million on 31 March 2021.
Overall, Cooper-Standard’s total debt grew from $920 million on 31 March 2020 to $1.025 billion on 31 March 2021. Thus, I think Cooper-Standard borrowed money to survive COVID-19.
What Value Does Cooper-Standard (CPS) have?
Cooper-Standard (CPS) has some value. It had $2.565 billion in Total Assets on 31 March 2021. The Total Assets fell from $1.392 billion on 31 March 2020. That means Cooper-Standard lost value during the pandemic.
Similarly, Cooper-Standard had $398.85 million in cash and short-term investments on 31 March 2021. The cash and short-term investments rose from $302 million 31 March 2020.
Thus, Cooper-Standard has a shrinking value and a small amount of cash. Hence, I think Cooper-Standard has a low margin of safety. I conclude Cooper Standard is not worth the $30.93 Mr. Market paid for it on 14 May 2021.
I consider Cooper-Standard (CPS) a value trap that investors need to avoid. Cooper-Standard is a trap because it has the value characteristics of a low-price and non-sexy products.
However, Cooper-Standard has a low value and a tiny amount of cash which gives it a low-margin of safety. Thus, once again, Cooper-Standard is a value trap you need to avoid.
Originally published at https://marketmadhouse.com on May 17, 2021.