Polaris Inc. (PII) in Medina, Minn., designs, engineers, manufactures and markets power sports vehicles worldwide. It operates in five segments: ORV/Snowmobiles; Motorcycles; Global Adjacent Markets; Aftermarket; and Boats. In comparison , BRP Inc. (DOOO) designs, develops, manufactures, and markets Powersports vehicles and marine products worldwide. BRP is based in Valcourt, Canada.

Outdoor activities are gaining traction, thanks to significant progress in the COVID-19 vaccination drive and  easing of travel restrictions. Though the rapid spread of the highly contagious Delta variant is a cause for concern, the recreational vehicles (RV) market is expected to grow at a sustainable rate over the long term. In a recent survey, 99% of respondents said they feel safe traveling in an RV. The industry is expected to be valued at $48 billion by 2026, registering a 7% CAGR over the next five years. Both PII and DOOO are expected to benefit from the industry tailwinds.

DOOO has gained 18.9% over the past six months, while PII has returned 10.5% over the period. However, PII’s 41.7% gains year-to-date compare with DOOO’s 35.7% returns. In terms of their past-year performance, DOOO is the clear winner with 90.7% gains versus PII’s 26%.

Click here to check out our Automotive Industry Report for 2021

But which stock is a better buy now? Let’s find out.

Latest Developments

On July 29, PII unveiled its 2022 model year lineup packed with rider-inspired innovations and advancements across its  RANGER, RZR, GENERAL, and Sportsman brands. These  additions and enhancements should help  the company to attract new customers.

On August 11, DOOO introduced its  2022 model year lineup of ATVs and side-by-side vehicles, offering more horsepower, better traction, and enhanced comfort. Its constant focus on improving  rider experience across its entire lineup of Powersports vehicles should drive its long-term growth.

Recent Financial Results

PII’s sales increased 40% year-over-year to $2.12 billion in its  fiscal second quarter, ended June 30. Its gross profit stood at $551.40 million, up 66% from the same period last year. Its adjusted net income attributable to the company grew 109% from its $169.40 million year-ago value. The company’s adjusted EPS has increased 108% year-over-year to $2.70.

DOOO’s revenues increased 47.1% year-over-year to CAD1.81 billion ($1.45 billion) in its fiscal first quarter ended April 30. Its gross profit grew 130.5% from its year-ago value to CAD542 million ($433.11 million), while its normalized net income improved 878% year-over-year to CAD222 million ($177.40 million). In addition, the company’s normalized EPS improved 873.1% year-over-year to Cad2.53 ($2.02).

Past and Expected Financial Performance

PII’s EBITDA grew at a 20.3% CAGR over the past three years, while its net income grew at a 36% CAGR over this period. Analysts expect PII’s revenue to increase 14.1% in the current quarter, 20.3% in the current year, and 3.6% in the next year. The company’s EPS is expected to grow 19.6% in the current year and 10.4% next year. Furthermore,  its EPS is expected to grow at a 15% rate per annum over the next five years.

In contrast,  DOOO’s EBITDA and net income have grown  at 29.1% and 48% CAGRs, respectively, over the past three years. Analysts expect the company’s revenue to increase 24.1% in the current quarter, 32.5% in the current fiscal year, and 6.4% in the next fiscal year. The company’s EPS is expected to grow 2.2% in the current quarter and 56.6% in the current fiscal year. Moreover, DOOO’s EPS is expected to grow 4% in the next fiscal year.

Profitability

DOOO is more profitable, with a gross profit margin and EBITDA margin of 28.42% and 18.33%, respectively, compared to PII’s 26.46% and 13.98%.

Also,  DOOO’s ROA and ROTC of 14.23% and 32.01%, respectively, compare with PII’s 12.74% and 20.84%.

Thus, DOOO is more profitable.

Valuation

In terms of forward EV/Sales, DOOO is currently trading at 1.28x, which is 15.6% higher than PII’s 1.08x. However, PII’s 8.54 forward EV/EBITDA ratio  is 12.2% higher than DOOO’s 7.50.

POWR Ratings

DOOO has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. PII, in contrast,  has an overall C rating, which translates to Neutral. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Both stocks have a B grade for Momentum. This is justified because they are trading well above their respective 50-day and 200-day moving averages.

DOOO has a B grade for Sentiment. This is justified because of 11 Wall Street analysts that rated the stock, nine rated it Buy. PII, in comparison,  has a grade of D for Sentiment. Of the seven Wall Street analysts that rated the stock, three rated it Buy, while three rated it Hold, and one rated it Sell.

Among the 61 stocks in the Auto & Vehicle Manufacturers industry, DOOO is ranked #8, while PII is ranked #25.

Beyond what we’ve stated above, we have also rated the stocks for Stability, Growth, Value, and Sentiment. Click here to view DOOO ratings. Also, get PII ratings here.

The Winner

Both PII and DOOO should benefit from the industry tailwinds, but we think its higher profit margins and sound financials make DOOO the better Buy here.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Auto & Vehicle Manufacturers industry here.

Click here to check out our Automotive Industry Report for 2021

PII shares were unchanged in after-hours trading Friday. Year-to-date, PII has gained 40.41%, versus a 20.05% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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