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It is not just the shareholders of Big Oil stocks such as Chevron (NYSE: CVX), ExxonMobil (NYSE: XOM), and Royal Dutch Shell (NYSE: RDS-A) that are suffering from the decline in oil and natural gas prices. American Railcar Industries (NASDAQ: ARII) is a small-cap producer of the railroad cars that now carry oil from fields across America to end users. As such, the stock price has fallen along with Chevron, ExxonMobil, Royal Dutch Shell, and others in the energy sector.
For income investors looking for a small-cap play in oil that benefits from other segments of the market, American Railcar Industries has much to offer.
The company is based in St. Charles, Missouri. The boom in the output of oil has resulted in more railcars being built by American Railcar Industries to transport crude for Big Oil entities and others. Since 2005, the amount of oil carried by train in the United States has increased by 400%. From this, earnings per share have surged by 22% for American Railcar Industries over the last five years. This year, earnings per share are up 36.10%.
While soaring earnings growth like that cannot be sustained, the chart below shows how strong the financials are for American Railcar Industries:
| Earnings per Share Projected Next 5 Years | Net Profit Margin | Dividend Yield | Dividend Payout Ratio | Debt-to-Equity Ratio | Institutional Ownership | Short Float | Beta | |
| American Railcar Industries | 6% | 13% | 3.14% | 30.60% | 0.60 | 90.70% | 7.82% | 2.86 |
| Chevron | 5.20% | 9.80% | 3.96% | 37.80% | 0.16 | 64.70% | 0.93% | 1.13 |
| ExxonMobil | 3.38% | 8.20% | 3% | 33.20% | 0.12 | 50.90% | 0.97 | 0.88 |
| Royal Dutch Shell | 4.55 | 3.70% | 4.55% | 73.10% | 0.24 | 13.40% | 0.29% | 1.25 |
For long-term investors, two negative indicators should be most intriguing about American Railcar Industries.The chart also shows how well the company compares with the biggest of Big Oil behemoths. American Railcar Industries has a higher profit margin and lower dividend payout ratio. The earnings per share projected growth is also greater for the small cap. Those financials point to American Railcar Industries’ ability to better finance future dividend growth, although it is difficult to ever imagine that being a problem for Chevron, ExxonMobil, or Royal Dutch Shell.Source: Finviz; *5% float is considered to be troubling for a security.
Both the short float and beta are much higher than average. That shows that there an appreciable element willing to bet that the stock price will fall even more. The robust dividend of American Railcar Industries makes that more compelling as an indicator as those short do not receive the income but have to pay for it in the share price.
If the price falls more, as many are willing to bet, then investors can buy at a discount with a higher dividend yield for the future.
There is certainly support among the institutional investor community for American Railcar Industries having a bullish future. Institutional investors such as mutual funds, pension groups, and others own more than 90% of the shares of the company. That is far more than the percentage for any Big Oil firm. It is very positive sign for those looking for a small cap that should be a profitable play on oil with a rewarding total return for long-term investors.
Jonathan Yates does not have a position in any of the stocks mentioned in this article.
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