How Low Can Mobile Mini Go?

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Shares of Mobile Mini (NAS: MINI) hit a 52-week low on Tuesday. Let's take a look at how it got there and whether cloudy skies are still in the forecast.

How it got here
The rental and leasing services sector is a hot business to be in right now. With many homeowners choosing to stay put rather than move, the need for extra storage has never been greater. We've seen this demand boosting the gross margins of storage specialist Public Storage (NYS: PSA) , as well as the bottom-line profits of do-it-yourself moving and storage operatorAMERCO (NAS: UHAL) , the parent of U-Haul, which has crushed analysts' estimates in four straight quarters. But not everyone has been invited to the party.

Mobile Mini, a provider of portable storage units of varying sizes, has failed to live up to Wall Street's earnings expectations, and its reduced share price is reflective of that.


In its latest quarter, Mobile Mini noted that sales grew 6% as leasing revenue rose by nearly 7%. Unfortunately, the Street was looking for much more, and the stock has been punished ever since. Despite gains to its utilization rate, changes made to the company's call center and seasonal weakness contributed to an unsatisfactory quarter.

How it stacks up
Let's see how Mobile Mini stacks up next to its peers.

MINI Chart

MINI data by YCharts

As you can see, fixed-storage REITs like Public Storage and CubeSmart (NYS: CUBE) are performing considerably better than portable storage unit companies Mobile Mini and McGrath RentCorp (NAS: MGRC) . Now let's dig a little deeper.

Company

Price/Book

Price/Cash Flow

Forward P/E

5-Year Revenue CAGR

Mobile Mini0.97.913.65.9%
Public Storage4.519.130.24.9%
CubeSmart1.614.615.32.2%
McGrath RentCorp1.95115.1%

Sources: Morningstar, Yahoo! Finance. CAGR = compound annual growth rate.

What we really have here is a case of fixed storage versus mobile storage. Mobile storage has been more reliant on construction activity to drive growth in the past, which is one reason it may be getting hit harder in recent years than fixed storage.

Mobile Mini, surprisingly, offers the most consistent annual sales growth, at nearly 6%, while CubeSmart, which is currently losing money on a trailing-12-month basis, has shown the slowest growth. Of this group, Public Storage, which I have featured negatively before, appears the priciest at 19 times cash flow, but as a REIT, it also distributes a healthy dividend to shareholders, which I'm sure is one reason its shares remain so pricey.

Another factor influencing share price here is these companies' overall debt load. Public Storage's debt-to-equity is just 10%, while CubeSmart's, McGrath's, and Mobile Mini's are much higher, in the 80% to 90% range. Mobile Mini has made strides to pay down its debt (it paid down an additional $4.2 million in its latest quarter on top of interest payments), but still boasts almost $700 million in total debt.

What's next
Now for the real question: What's next for Mobile Mini? That answer is going to depend on whether or not it can continue to grow leasing revenue despite the ebb and flow of the construction sector and whether it can keep making strides to pay down its massive pile of debt. The good news is that it has paid down $239 million in debt in just the past four years.

Our very own CAPS community gives the company a four-star rating (out of five), with just 20 of 553 members expecting it to underperform. Although I have yet to personally make a CAPScall on the stock, I'm ready to anoint Mobile Mini with a call of outperform.

Mobile Mini offers investors a chance to own a steadily growing business at a reasonable price. At just 13.6 times forward earnings, investors get a company that has repaid about 25% of its debt in just four years, yet has expanded its business in light of a major downswing in the construction industry. There are plenty of avenues for growth from both sides of the aisle. Administrative expense cuts are eliminating wasteful spending and boosting margins, while growth in nontraditional sectors, such as renting its pods to retailers, is beginning to show promise. I see Mobile Mini as a solid long-term winner.

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At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Mobile Mini. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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