Investment Thesis
Toro Co faces significant operational deterioration with net income declining 24.5% YoY despite stable revenue, indicating margin compression and inefficient cost management. Combined with extremely poor capital efficiency (ROE 4.8%, ROA 1.8%), weak free cash flow generation (1.4% margin), and concerning interest coverage of only 2.6x, the company demonstrates deteriorating fundamentals that warrant investor caution.
Strengths
- Revenue relatively stable at 1.0B with only 1.6% decline, indicating retained market position
- Healthy current ratio of 1.69x demonstrates adequate short-term liquidity
- Gross margin of 32.5% suggests reasonable underlying production economics in core business
Risks
- Net income collapsed 24.5% YoY while revenue declined only 1.6%, indicating severe operating inefficiency and margin compression
- Exceptionally low capital returns (ROE 4.8%, ROA 1.8%) show the business generates minimal value from deployed capital
- Weak free cash flow (1.4% margin on 1.0B revenue) with interest coverage of only 2.6x leaves limited cushion for debt service or investment
- Quick ratio of 0.73x indicates dependence on inventory conversion for liquidity, risking stress if sales further deteriorate
Key Metrics to Watch
- Operating margin trend and gross profit dollars to identify whether margin compression persists or stabilizes
- Free cash flow and operating cash flow conversion to assess whether business can fund obligations and growth
- Interest expense coverage ratio and debt levels as the company's leverage becomes more concerning with declining profitability
Financial Metrics
Revenue
1.0B
Net Income
67.9M
EPS (Diluted)
$0.69
Free Cash Flow
14.6M
Total Assets
3.7B
Cash
189.0M
Profitability Ratios
Gross Margin
32.5%
Operating Margin
8.4%
Net Margin
6.6%
ROE
4.8%
ROA
1.8%
FCF Margin
1.4%
Balance Sheet & Liquidity
Current Ratio
1.69x
Quick Ratio
0.73x
Debt/Equity
0.76x
Debt/Assets
0.0%
Interest Coverage
2.65x
Long-term Debt
1.1B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-04-17T22:18:25.044547 |
Data as of: 2026-01-30 |
Powered by Claude AI