The Lion of the Recreational Vehicle Industry
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The recreational vehicle industry has seen significant growth over the past few years. Off-road vehicle sales have increased 35% YOY in 2010, 32% YOY in 2011, and are expected to grow 18% YOY this year. Moreover, the recreational vehicle index, as compiled by Tickerspy, is up 49.6% versus the S&P 500 since January 2008.
However, the industry has not been without its share of negative factors. Last winter was unseasonably warm and had limited snowfall, a phenomenon that resulted in the North American snowmobile industry retail sales declining about 20% in the first quarter of 2012. This in turn affected the bottom lines of recreational vehicle companies such as Arctic Cat (NASDAQ: ACAT), which missed revenue guidance by $24M.
Many recreational vehicle companies, such as Marine Product (NYSE: MPX) and Winnebago Industries (NYSE: WGO) have very low profit margins that will continue to limit future growth. Harley-Davidson (NYSE: HOG), the iconic American recreational vehicle company, has been plagued by reports of slowing sales and a daunting 159% Debt/Equity Ratio.
However, there is one company that continues to post huge growth and is best poised to benefit from the growth in the recreational vehicle industry: Polaris Industries (NYSE: PII). Polaris Industries is a company that designs, engineers, manufactures, and markets off-road vehicles and snowmobiles. The company stock is off to a fast start for the year, notching a 27% YTD gain.
One of the most appealing aspects of Polaris Industries is its business model, which ensures that seasonal factors such as unseasonably warm winters will not have a significant impact on its bottom line. Polaris has a wide portfolio of multi-passenger, off-road ATVs (known as side-by-sides) that function not only as recreational vehicles, but also have applications in such areas as farming and construction. Moreover, many of Polaris Industry's vehicles can be customized for a variety of applications. In fact, the company is estimated to have as many different models of side-by-sides than the rest of the industry combined.
Polaris expects that for 2012, well over 70% of its revenue will be generated from products introduced within the last three years; in the first quarter of 2012 alone, Polaris introduced two new Victory models, the RZR XP4 900, and ten new snowmobiles. This diversification has resulted in the production of a wide array of innovative products and limited exposure to seasonal factors that will continue to spur future growth in the company.
Polaris Industries continues to aggressively expand. Recently it has been focused on the motorcycle market, one which has become increasingly profitable for the company. In the first quarter of 2012, sales of Polaris on-road vehicles, which are mainly comprised of the company's Victory motorcycles, rose approximately 40%. Moreover, Polaris recently announced a minority investment in Brammo, which produces such products as electric motorcycles. This market is rapidly expanding and with the investment, Polaris gains access to Brammo's "proprietary electric vehicle powertrain technology, as well as exposure to the rapidly growing electric motorcycle market." This minority investment comes on the heels of the company's April 2011 acquisition of Indian Motorcycle Co., one which Polaris expects to revamp and reintroduce into the market in the near future.
There has been huge demand for Polaris products on the international stage -- international revenue was up 20% YOY in the first quarter of 2012. Even in Europe, which has been negatively impacted by the sovereign debt crisis, Polaris reported a revenue increase of 15% YOY and an increase in its market share lead. In the Asia Pacific region, Polaris reported a 59% YOY increase in revenue due to strong growth in Australia, China and India. Polaris is just developing itself on the international stage, which allows the company significant opportunities to expand. Moreover, Paul Hickey, co-founder of Bespoke Investment Group, has pointed out that although international sales for Polaris are growing, it is still a defensive company with limited exposure to hotspots such as Europe.
Finally, it is important to note that Polaris Industries has very strong financials. In fact, it recently delivered its 20th consecutive positive earnings surprise. In the most recent quarter, the first quarter of 2012, Polaris reported EPS of $0.85, which beat by $0.08, and revenue of $673M, which beat by $61M. Polaris Industries also pays a solid annual dividend, a development started in 1995 that has been raised every year since; currently it is $1.48 a share. Polaris has a manageable 21% Debt/Equity Ratio and has a very high 52.3% ROE, one which shows the high profitability of the company's operations.
Overall, Polaris Industries is a very attractive investment and the best play on the recreational vehicle industry going into the future. There continue to be significant opportunities for expansion for Polaris, especially in the motorcycle industry and on an international scale. Investors should definitely consider a potential investment in this company with roaring growth.
Bilifuduo has no positions in the stocks mentioned above. The Motley Fool owns shares of Arctic Cat and Winnebago Industries. Motley Fool newsletter services recommend Polaris Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.If you have questions about this post or the Fool’s blog network, click here for information.