Polaris Stock Stands Out Among Its Competitors

  • Polaris performs better than competitors during difficult times.
  • Polaris’ Indian Motorcycle brand represents a serious contender for Harley Davidson.
  • Polaris, unlike Artic Cat, isn’t hampered by major product recalls.
  • Polaris stock isn't cheap when compared to Harley Davidson, but both trade at a discount to the S&P 500.

There are three types of companies: those that sell needed products such as railroad transportation, those that sell highly wanted recreational products such as toys and those that sell a combination of needed and wanted products. Polaris Industries (NYSE:PII), which makes ATVs, snowmobiles, small vehicles, side-by-side vehicles and motorcycles, definitely qualifies as a recreational company. However, this company sets itself apart from its competitors. Here’s why.

Good financial management

Recreational oriented companies typically perform relatively poorly during times of recession as consumers prioritize their use of scarce dollars for basic necessities. Polaris is no exception. However, sometimes success can be a relative thing. Due to its financial prudence, Polaris never turned a net loss (see chart below) nor was it free cash flow negative during the last recession, which occurred between 2007 and 2009.

PII net income chart

Source: Polaris net income data by amigobulls.com

Polaris’ competitors didn’t fare nearly as well. The company’s most direct publicly traded competitor, Arctic Cat (NASDAQ:ACAT), turned net losses during the last recession (see chart below) and was free cash flow negative in 2011. Arctic Cat has also struggled during relatively good times due to a product recall that it had in the fall of 2014. Product recalls can damage brands by leaving a negative perception in the minds consumers.

ACAT net income chart

Source: Arctic Cat net income data by amigobulls.com

Even motorcycle juggernaut Harley Davidson (NYSE:HOG), which competes directly with Polaris’ motorcycle unit, turned a net loss during the recession (see chart below) and registered a free cash flow deficit in 2008.

HOG net income chart

Source: Harley Davidson Net Income Chart by amigobulls.com

Strong motorcycle brand

Another thing going for Polaris is the Indian Motorcycle brand. Polaris purchased Indian Motorcycle from a private equity firm in 2011. The Indian Motorcycle brand possesses a history dating as far back as Harley Davidson and Polaris can leverage its nostalgic factor to expand its motorcycle business.

The Indian brand has served as a healthy contributor to Polaris’ top line expansion since 2011. Polaris’ motorcycle sales increased 160% from 2011 to 2014. So far this year, Polaris’ motorcycle sales remain robust with its motorcycle sales increasing 65% year-over-year.

Motorcycles now represent 14% of Polaris’ overall sales versus 5% in 2011. Of course, Polaris’ $349 million in 2014 motorcycle sales represent a far cry from the $6.2 billion in revenue that Harley Davidson registered last year. However, Polaris can grow into a serious contender for Harley Davidson if Polaris can keep expanding its motorcycle segment at a healthy clip.

The downside for Polaris stock investors

Harley Davidson holds some advantages over Polaris. First, Harley Davidson focuses on motorcycles, financing those motorcycles and related merchandise. This allows Harley Davidson’s management to get better and better at making and selling motorcycles. Polaris’ management needs to worry about product lines such as ATVs and snowmobiles. Of course, you could argue that multiple product lines can provide diversity for Polaris and its shareholders. In other words, if one product line goes sour it can fall back on others. Most of Harley Davidson’s fortune comes from one major product - motorcycles.

Also, Harley Davidson’s stock comes at a lower valuation than Polaris. Harley Davidson currently trades at a P/E ratio of 15 versus 17 for Polaris. However, both companies trade lower than Arctic Cat’s P/E ratio of 995, which stems from Arctic Cat’s struggles with the product recall. The valuation of both Harley Davidson and Polaris reside below the S&P 500 P/E ratio of 20.

Conclusion

Polaris’ capable financial management during difficult times makes this company an attractive investment option in comarison to its competitors. Moreover, Polaris’ knack for innovation will keep the final consumer interested in purchasing its products. For example, Polaris just recently introduced six interesting looking new Indian Motorcycles for 2016. Polaris may also be able to pick up market share from Arctic Cat, which has faced brand struggles stemming from its product recall. Polaris stock definitely deserves a spot in your portfolio.

Show Full Article
5 2
Is this article helpful ?    


Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
  • See Amigobulls' policy on anonymous authors who use a pseudonym
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

At Amigobulls, we prefer that our authors disclose their real names. However, due to a variety of reasons, author's may prefer otherwise. Recognizing the fact that the ideas conveyed carry greater significance, and to facilitate the dissemination of these ideas, we allow authors to use a pseudonym. However, we do collect the same of details from anonymous authors, as we do from others, like the author's real name and contact information. Of course, this information remains confidential with us, and is not displayed on the site.
Further, to protect the interests of our readers/viewers, anonymous authors are required to make the same set of disclosures as other authors. For more details, you can write to any of our in-house editors at contributions@amigobulls.com.

show more

Comments on this article and PII stock

Do share this awesome post