We came across a bullish thesis on BRP Inc (DOOO) on ValueInvestorsClub by evergreen121821. In this article we will summarize the bulls’ thesis on DOOO. BRP shares were trading at $101.36 when this thesis was published, vs. closing price of $72.38 on Aug 30.
BRP is a leading powersports vehicle manufacturer in North America, renowned for its innovative and high-performance products. The company specializes in creating a wide range of vehicles, including snowmobiles, watercraft, all-terrain vehicles (ATVs), and side-by-side vehicles (SSVs). These products cater to both recreational and utility purposes, making BRP a dominant force in its industry. The company’s revenue streams are diverse, with a significant portion derived from the North American market, supported by a strong global presence. BRP’s top clients include outdoor enthusiasts, utility workers, and organizations that require specialized vehicles for various purposes.
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Despite its strong market position and impressive growth, BRP’s stock is currently undervalued. The company has experienced substantial revenue and EBITDA growth since the COVID-19 pandemic, yet its valuation remains historically low. BRP’s revenue has surged by approximately 78%, and its EBITDA has grown by an impressive 127% over the past year, ending in October 2023. Despite these achievements, BRP is trading at just 5.4 times its adjusted EBITDA, which is significantly lower than its pre-COVID average multiple of 9.2 times. This discrepancy presents a compelling opportunity for investors.
The market’s concerns about overearning seem to be exaggerated. BRP has demonstrated its ability to sustain growth even in a post-pandemic environment, thanks to its significant market share gains in North America. The company’s market share has increased from 27% pre-COVID to an impressive 37%, and this growth is expected to be durable. Additionally, the powersports industry has undergone structural changes that reduce its cyclicality, making BRP’s earnings more resilient than the market anticipates.
The industry has shifted from a dominance of ATVs to a focus on SSVs, with SSVs now accounting for over 60% of industry units. This shift towards utility-oriented vehicles suggests a reduced cyclicality in the industry, further enhancing BRP’s growth prospects. The consolidation of the powersports dealer market since the Global Financial Crisis (GFC) has also strengthened the industry’s resilience, providing a solid foundation for BRP’s continued success.
BRP’s commitment to innovation and its dealer-friendly approach position the company to continue capturing market share, even in challenging economic conditions. The powersports sector is benefiting from permanent shifts in lifestyle induced by the pandemic, favorable demographic changes, and ongoing product innovations. These factors are expected to drive sustained growth for BRP over the long term.
DOOO is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 7 hedge fund portfolios held DOOO at the end of the second quarter which was 13 in the previous quarter. While we acknowledge the potential of DOOO as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as DOOO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.