The global leader in powersports, Polaris Inc. (PII - Get Rating) in Medina, Minn., has a wide ranging, high-quality product line-up that includes Polaris RANGER, RZR and Polaris GENERAL Sportsman, Indian Motorcycle, and Slingshot. The company has benefited from the increasing demand for recreational vehicles and the shortage of inventory across the industry.

However, the stock has slumped 17.9% in price over the past nine months and 12.3% over the past six months to close yesterday’s trading session at $115.02.

PII plans to offer an electric version of each of its vehicle types by 2025. However, considering the major challenges related to the semiconductor chip shortage, its growth potential could be impeded. In addition, PII’s narrowing operating profit makes its prospects look uncertain.

Here is what could influence PII’s performance in the upcoming months:

Industry Headwinds

Last year, PII committed to offering electric vehicle options within each of its core products segments. However, the persistent semiconductor chip shortage continues to threaten the growth of the companies operating in this space. According to a Deloitte report, the semiconductor shortage may last through 2023.

Mixed Financials

PII’s sales have increased marginally year-over-year to $2.17 billion for the fourth quarter, ended Dec. 31, 2021. However, its operating income declined 41.1% from its year-ago value to $154.9 million. The company’s net income narrowed 56.3% from the prior-year quarter to $86.8 million, while its EPS declined 55.6% year-over-year to $1.40.

Mixed Profitability

PII’s ROA, ROC, and asset turnover ratio are 69%, 100.6%, and 62.9% higher than their respective industry averages. Also, its $293.7 million in cash from operations is 60.7% higher than the $182.74 million industry average.

However, PII’s 24.3% trailing-12-months gross profit margin is 32.2% lower than the 35.8% industry average. Also, its 6% net income margin is 6.5% lower than 6.4% industry average. Furthermore, its trailing-12-months levered FCF margin is negative 1.4% compared to the 5.5% industry average.

POWR Ratings Reflect Uncertainty

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

Our proprietary rating system also evaluates each stock based on eight distinct categories. PII has a D grade for Growth and C for Quality. The company’s mixed profitability and financials are consistent with these grades.

Among 69 stocks in the F-rated Auto & Vehicle Manufacturers industry, PII is ranked #34.

Beyond what I have stated above, one can view PII ratings for Stability, Value, Momentum, and Sentiment here.

Bottom Line

Though PII’s stock has gained 4.7% over the past month, analysts expect its EPS to decline 10.7% in the next quarter (ending March 2022). Furthermore, given the slowdown in its operational performance in its last reported quarter, its growth prospects look uncertain. So, we believe investors should wait for its prospects to stabilize before scooping up its shares.

How Does Polaris Industries Inc. (PII) Stack Up Against its Peers?

While PII has an overall C rating, one might want to consider its industry peers, Isuzu Motors Limited (ISUZY - Get Rating), Mazda Motors Corporation (MZDAY - Get Rating), and Daimler AG (DDAIF - Get Rating), which have an overall B (Buy) rating.

PII shares rose $0.98 (+0.85%) in premarket trading Wednesday. Year-to-date, PII has gained 5.54%, versus a -4.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

More Resources for the Stocks in this Article