Thursday's IBD 50 Stocks To Watch pick is a top-rated and widely-recognizable equipment stock in a flat base nearing a buy point. Toro is one to watch as it holds the top position in its industry group and has noteworthy fundamentals.
The Bloomington, Minn.-based company specializes in equipment used in turf and landscape maintenance, snow and ice management, underground utility construction, irrigation and outdoor lighting solutions. Users include golf courses, groundskeepers, agricultural growers, government and educational institutions, sports venues and homeowners.
Toro manufactures in nine countries and distributes its products to over 125 countries.
Equipment Stock In A Base Nearing Buy Point
Toro stock is in a flat base and within 4% of a 92.05 buy point. Shares are trading just below its 21-day exponential moving average and finding support at its 200-day moving average on the MarketSmith chart. The equipment company's relative strength line is at a new high, as indicated by a blue dot on the weekly chart.
The stock entered an upward trend on Sept. 1 after reporting a beat on fiscal Q3 2022 earnings and missing on sales numbers. Management also raised 2022 adjusted earnings guidance in the release.
Toro has an 87 Relative Strength Rating, meaning it has outperformed 87% of stocks in the IBD database.
Equipment Maker Earns High Scores
Toro is ranked No. 1 in the Building-Hand Tools group, which is 89th out of the 197 industry groups that IBD tracks. The group is moving up the ranks quickly, as it was No. 108 one week ago and No. 150 four weeks ago.
Q2 earnings-per-share increased 29% after several unimpressive quarters. Sales growth has been accelerating as well, with June quarter growth reaching 19%, up from 9% in March and 7% in December.
Analysts are expecting 15% annual EPS growth in 2022 and 18% in 2023.
Toro holds a strong 92 Composite Rating and an 86 EPS Rating.
It also has a respectable 35% return on equity (ROE), a measure of financial profitability and efficiency. The CAN SLIM investing strategy looks for a minimum of 17% ROE, with high-performing growth companies in the 25% to 50% range.
Toro has a 60% debt ratio, which is considerably higher than competitors. This metric measures a company's long-term debt, divided by shareholder equity. The overhang could impact profits in this rising-rate environment.
The company offers a quarterly dividend of $0.30 per share, which currently translates into a 1.4% yield.
Institutions Have Mixed Feelings
Mutual funds own 55% of the stock but the number of funds with exposure is declining. Shares were held by 690 funds in June, down from 749 in March.
IBD research indicates it's best to look for stocks with increasing institutional support because it shows bullish conviction.
On the plus side, Northcoast Research just upgraded the equipment stock to "Buy" from "Neutral."
