5) Polaris Inc. (NYSE:PII)
% Decline on a YTD Basis: ~30%
Number of Hedge Fund Holders: 20
Polaris Inc. (NYSE:PII) is engaged in designing, engineering, manufacturing, and marketing power sports vehicles in the US, Canada, and internationally.
Polaris Inc. (NYSE:PII)’s stock has seen a decline of ~30% on a YTD basis amidst ongoing inventory management issues. Given the elevated inventory levels, mainly in the ORV segment, it might have to increase promotional activities to clear excess stock. This can result in margin compression and reduced profitability.
However, Polaris Inc. (NYSE:PII) continues to focus on electric vehicle (EV) options, primarily in its off-road and recreational vehicle segments. This aligns with the increased consumer demand for sustainable and environmentally friendly products. Since the roll-out of its all-electric RANGER XP Kinetic utility side-by-side in 2023, the company has been leveraging electric technology to deliver leading performance capabilities and an unparalleled experience for off-road riders.
With the expectation of strong growth in the global EV market, Polaris Inc. (NYSE:PII) can tap a substantial opportunity to expand into the EV space. EVs provide a new product segment that differentiates Polaris Inc. (NYSE:PII) from traditional combustion engine vehicles, strengthening its brand appeal. Industry experts believe current management exhibited operating discipline through divestments of bad businesses acquired under old management. As a result, Polaris Inc. (NYSE:PII) can now focus on its roots in power sports.
Artisan Partners, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“We are always on the lookout for companies that are under pressure in some form or fashion as this can create the conditions for an attractive entry price. Though equity markets have made substantial gains over the past year, we have still found select opportunities to put capital to work. Q3 purchases included Warner Music Group, MGM Resorts International and Polaris.
Polaris designs, engineers and manufactures powersports vehicles, operating in three segments: off-road, on-road and marine. The company has had a couple bad quarters, consistent with other industry peers, as demand for recreation is down. Additionally, consumer financing costs and dealer floorplan costs are up due to higher interest rates. The combination is pressuring margins. It’s a discretionary business to be sure, so we have eyes wide open. However, we believe that inventory issues are creating an opportunity to buy a market leader at an absolute cheap price. The stock is the lowest since the first half of 2020 when the pandemic began. The company is well run historically, and current management has demonstrated operating discipline by divesting bad businesses acquired under old management, focusing on the company’s roots in power sports and continuing its history of returning capital to shareholders via dividends and buybacks. Returns for the business are strong with returns on tangible capital most years in the mid-to-high teens. It is well financed with a balance sheet that is well termed out.”
