What are the key takeaways from this Investing for Beginners episode?

Key insights include: **Segment profitability over headline revenue:** Cummins has five reportable segments — engines, components, distribution, power systems, and Accelera. Despite power systems generating far smaller revenue than engines, it has become the highest-profit segment over the trailing twelve months. Investors should use tools like Fiscal AI's segments tab to identify which business units actually drive earnings, not just top-line growth.; **Margin trend analysis to detect cost pressure:** Gross and operating margins reveal whether rising costs are outpacing revenue. Cummins shows flat gross margins but operating margins below their pre-2017 peak, signaling cost absorption challenges from tariffs and supplier inflation. Checking margin percentages over eight to twelve quarters on platforms like ROIC.ai exposes deterioration that headline revenue figures conceal entirely.; **Cyclicality assessment using operating margin history:** Reviewing operating margin going back to IPO on ROIC.ai shows Cummins experienced margin compression exceeding 50% during 2008–2009 and again in 2022–2023. This places it in the moderate-to-slightly-above-average cyclicality range — less severe than homebuilders but still meaningful enough to avoid overpaying during peak earnings cycles.

What did Andrew Sather discuss on Investing for Beginners?

Cummins posted a record Q2 2025 revenue of $9.46 billion, up 9% versus projections, with raised full-year guidance — yet the stock dropped from $700 to $500 since June. Stephen Morris and Andrew Sather dissect why strong earnings don't automatically signal a strong stock or entry point. Key topics include: **Segment profitability over headline revenue:** Cummins has five reportable segments — engines, components, distribution, power systems, and Accelera. Despite power systems generating far smaller revenue than engines, it has become the highest-profit segment over the trailing twelve months. Investors should use tools like Fiscal AI's segments tab to identify which business units actually drive earnings, not just top-line growth.; **Margin trend analysis to detect cost pressure:** Gross and operating margins reveal whether rising costs are outpacing revenue. Cummins shows flat gross margins but operating margins below their pre-2017 peak, signaling cost absorption challenges from tariffs and supplier inflation. Checking margin percentages over eight to twelve quarters on platforms like ROIC.ai exposes deterioration that headline revenue figures conceal entirely..

How long is this episode of Investing for Beginners?

This episode is 44 minutes long. SignalCast provides an AI-generated summary so you can get the key insights in about 3 minutes.

Investing for Beginners

Cummins (CMI): Record Quarter, Falling Stock — What Wall Street Sees

September 28, 2026

44 min episode · 2 min read

Andrew Sather

Episode

44 min

Read time

2 min

Topics

Investing, Fundraising & VC, Sales & Revenue

AI-Generated Summary

Published Sep 28, 2026

Key Takeaways

✓Segment profitability over headline revenue: Cummins has five reportable segments — engines, components, distribution, power systems, and Accelera. Despite power systems generating far smaller revenue than engines, it has become the highest-profit segment over the trailing twelve months. Investors should use tools like Fiscal AI's segments tab to identify which business units actually drive earnings, not just top-line growth.
✓Margin trend analysis to detect cost pressure: Gross and operating margins reveal whether rising costs are outpacing revenue. Cummins shows flat gross margins but operating margins below their pre-2017 peak, signaling cost absorption challenges from tariffs and supplier inflation. Checking margin percentages over eight to twelve quarters on platforms like ROIC.ai exposes deterioration that headline revenue figures conceal entirely.
✓Cyclicality assessment using operating margin history: Reviewing operating margin going back to IPO on ROIC.ai shows Cummins experienced margin compression exceeding 50% during 2008–2009 and again in 2022–2023. This places it in the moderate-to-slightly-above-average cyclicality range — less severe than homebuilders but still meaningful enough to avoid overpaying during peak earnings cycles.
✓One-time earnings boosters to strip out before valuing: Large acquisitions and non-recurring credits — such as tariff refunds — can inflate a single quarter's results without reflecting sustainable business performance. Investors should scan earnings call prepared remarks and the cash flow statement's three sections for unusual large numbers, then adjust models to exclude items unlikely to repeat in subsequent quarters.
✓ROIC long-term slope as a maturity signal: A slowly declining ROIC trend over many years, visible on ROIC.ai, signals a maturing business even when recent quarters look strong. For Cummins, this pattern suggests the company is unlikely to deliver outsized portfolio returns despite its brand strength and diversification, making valuation discipline and dividend yield consideration essential before initiating a position.

What It Covers

Cummins posted a record Q2 2025 revenue of $9.46 billion, up 9% versus projections, with raised full-year guidance — yet the stock dropped from $700 to $500 since June. Stephen Morris and Andrew Sather dissect why strong earnings don't automatically signal a strong stock or entry point.

Key Questions Answered

•Segment profitability over headline revenue: Cummins has five reportable segments — engines, components, distribution, power systems, and Accelera. Despite power systems generating far smaller revenue than engines, it has become the highest-profit segment over the trailing twelve months. Investors should use tools like Fiscal AI's segments tab to identify which business units actually drive earnings, not just top-line growth.
•Margin trend analysis to detect cost pressure: Gross and operating margins reveal whether rising costs are outpacing revenue. Cummins shows flat gross margins but operating margins below their pre-2017 peak, signaling cost absorption challenges from tariffs and supplier inflation. Checking margin percentages over eight to twelve quarters on platforms like ROIC.ai exposes deterioration that headline revenue figures conceal entirely.
•Cyclicality assessment using operating margin history: Reviewing operating margin going back to IPO on ROIC.ai shows Cummins experienced margin compression exceeding 50% during 2008–2009 and again in 2022–2023. This places it in the moderate-to-slightly-above-average cyclicality range — less severe than homebuilders but still meaningful enough to avoid overpaying during peak earnings cycles.
•One-time earnings boosters to strip out before valuing: Large acquisitions and non-recurring credits — such as tariff refunds — can inflate a single quarter's results without reflecting sustainable business performance. Investors should scan earnings call prepared remarks and the cash flow statement's three sections for unusual large numbers, then adjust models to exclude items unlikely to repeat in subsequent quarters.
•ROIC long-term slope as a maturity signal: A slowly declining ROIC trend over many years, visible on ROIC.ai, signals a maturing business even when recent quarters look strong. For Cummins, this pattern suggests the company is unlikely to deliver outsized portfolio returns despite its brand strength and diversification, making valuation discipline and dividend yield consideration essential before initiating a position.

Notable Moment

Andrew revealed he sold Cummins in 2024 to buy Starbucks — a decision he now calls one of his dumbest mistakes. Cummins subsequently performed well while Starbucks declined, illustrating how even experienced investors make costly errors by abandoning solid businesses for seemingly better opportunities.

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Episode Transcript

So Cummins just posted up a monster q two. I mean, a record q two in revenue, up 9% from what they're projecting for q two. North America was up. International was up. Everything is up. Their EBITDA looks healthy, and management even went as far as to raise their full year growth guidance. And that's exactly the kind of headline that sets a trap for us investors. We assume that just because they had a good quarter, that equals a good company, which equals a good stock. So today, Andrew and I are doing the exact opposite of that. We are assuming it's not a good company and is not a good stock, and we're gonna start breaking it down. So buckle up. Here we go. It's gonna be fun. There's a huge misconception that to start a business, you need to invent some revolutionary product. But the truth is you really don't. Some of the best businesses start as a simple side hustle, like selling a craft you make on the weekends or turning a hobby into extra cash. For a lot of people, the real hurdle isn't the idea. It's the technology. Figuring out how to actually sell online is where a lot of folks just give up. That's exactly why you need Shopify. Shopify is the ecommerce platform responsible for millions of sales worldwide. It handles all facets of your business, your online storefront, your inventory management, and your point of sale so you don't have to juggle 10 different systems. One platform is all you need. You also don't need to be a tech expert. Shopify templates and AI tools get you a stunning site up and running fast. No coding needed. And because Shopify handles the setup and checkout, you have more time to focus on actually growing your business. If you're ready to hear the of your first sale today, head over to shopify.com/beginners to start your free trial. That's right. Start your free trial at shopify.com/beginners. That's shopify.com/beginners. Observe the North American dad, fifties, great polo collection. He enters his vehicle information on Carvana, an offer appears in minutes. Remarkable. He squints, reads it again, smiles, and says, dang, that's a good offer. The highest form of approval. No haggling. No hassle. No one called him boss. He's still on the couch. Astonishing. Sell your car today on carvana.com. Pickup fees may apply. You're tuned in. You're tuned in. To the investing for beginners podcast. Investing for beginners podcast. The show for the long term investor. We cut through the noise to focus on what works. Compounding, discipline, and the conviction to buy wonderful businesses and stick with them. Your path to financial freedom. Start now. And welcome back to the investing for beginners podcast, everybody. My name is Stephen Morris, and across from me is the Andrew Saylor. That's right. He is the Andrew Saylor, just like the Ohio State University. I feel like at this point, Andrew, you you've earned …

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