Titan Machinery: Doesn't Anybody Look at Valuation?

Titan Machinery (NASDAQ: TITN) is the latest darling of the so-called "Ag Boom". Titan Machinery sells farm and construction equipment via a network of 48 stores located in the upper Midwest – mostly in the Dakotas, Minnesota and Iowa. They exclusively sell Case and New Holland ag and construction equipment, all produced by CNH Global, NV (NYSE: CNH). The company came public in December 2007 with an IPO price of $8.50 and closed the first day of trading at $9.50. In the next 6 months the stock made steady progress towards $20, lingered in the low $20's, and in the last month has broken out to the low $30's. As of this writing, the total return to IPO investors is 256%.

Lately, the company has been on an absolute tear – showing 3 year revenue and net income CAGRs of 39% and 59%, respectively. For their most recent quarter ended 4/30/2008, revenue was up 91% y/y to $152.6M, and net income was up a staggering 327% to a record $3.4M. On the day of the release, the stock opened up 7% before closing up 11%, and climbing to $34 over the next week, a 22% increase on the pre-earnings closing price. That paragraph should have set off a few alarm bells, which I'll return to in a bit.