PII: Is Polaris Stock Still a Buy?

The Powersports vehicle manufacturer Polaris, Inc. (PII) has been capitalizing on the EV boom, delivering double-digit returns over the past year. Despite primarily manufacturing fuel-run vehicles, the stock gained 74.1% over the past nine months, owing to its commitment towards a clean energy transition. The company’s electric ATV and snowmobile manufacturing designs announced in October last year accelerated gains, as evident from its 25.8% gains over the past three months.

PII outperformed the broader markets by delivering 19.9% returns over the past month. The company announced yesterday that it has been listed in Fortune’s ‘Most Admired Companies’ list.

I think the following factors should significantly drive the company’s performance in the near term:

Strong Fundamentals

Founded in 1954, PII’s industry knowledge and over six decades of experience have allowed the company to deliver highly efficient vehicles in the market. Its off-road and all-terrain vehicles are some of the highly demanded automobiles in the market, as evident from the company’s trailing 12-month revenues of $7.11 billion. Furthermore, PII’s revenues have increased at a CAGR of 8.9% over the past three years.

PII generates significant profits from its operations, as indicated by its gross margin of 25.6%. The company’s trailing 12-month return on total equity and return on total capital of 11.1% and 13.7% compare favorably with the respective sector averages. PII has generated $1.02 billion as cash from operations in the trailing 12 months, 439.7% higher than the sector average of $188.73 million.

Macroeconomic Tailwinds

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PII is no stranger to the EV space. Its RANGER EV is one of the first off-road electric vehicles launched in the United States and is one of the best-selling products in the off-road segment to date. Already have a couple of electric-powered vehicles in its pipeline, the company is taking the next step by launching the rEV’d up the initiative. As a part of this strategy, the company entered into a 10-year exclusive partnership with EV bike maker Zero motorcycles. PII aims to leverage its partner’s technology and hardware support to design EVs for each of its product categories by 2025, with the first product to be launched by the end of this year.

PII’s strategy to enter the EV space aligns with the country’s goal to transition to sustainable energy. President Biden’s $2 trillion Green New Deal combined with the rising concerns regarding climate change has sent the EV industry soaring. With higher capital inflows, government subsidies, and tax credits, the EV industry is poised to make record highs this year. This should accelerate PII’s growth greatly in the upcoming months.

Impressive Revenue and Earnings Outlook

The consensus EPS estimate of $1.56 for the current quarter ending March 2021 indicates a 609.1% improvement year-over-year. Analysts expect the company’s EPS to rise 12.9% in fiscal 2021, and at a rate of 15% per annum over the next five years. Moreover, the company beat the Street EPS estimates in three out of the trailing four quarters, which is impressive. The consensus revenue estimate of $1.84 billion for the ongoing quarter indicates a 31.1% improvement from the same period last year. PII’s revenue is expected to rise 15.2% to $8.09 billion in fiscal 2021.

Favorable Analyst Sentiment

Analysts expect PII to hit $122.60 soon, indicating a potential upside of 4.2%. The stock enjoys favorable analyst sentiment as well. Out of 17 Wall Street analysts that rated the stock, 5 rated it “Strong Buy”, and 7 rated it “Buy”.

POWR Ratings Indicate Significant Upside

PII has an overall rating of A, which equates to Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors with each factor weighted to an optimal degree.

Our proprietary rating system evaluates each stock in a total of 8 different categories. PII has a Growth Grade of A, consistent with its earnings and revenue growth potential.

In addition to this, the company has a grade of B for Value and Quality, reflecting the stock’s growing profitability as well as relative undervaluation. PII’s non-GAAP trailing 12-month P/E of 14.82x is 25.8% lower than the industry average of 19.97x.

To check PII’s POWR Ratings for Sentiment, Industry, Stability, and Momentum, click here.

There are five other stocks in the Auto & Vehicle Manufacturers industry with an overall POWR Rating of A. Click here to see them.

Bottom Line

Strong fundamentals and expansion strategies in the backdrop of a booming industry should allow PII to soar significantly soon, making it a good investment bet.

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PII shares were trading at $114.61 per share on Tuesday morning, up $0.35 (+0.31%). Year-to-date, PII has gained 20.29%, versus a 2.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...