An Off-the-Beaten-Path Wide-Moat Idea
Temporary headwinds aside, Polaris is a standout among powersports companies, says Morningstar's Jaime Katz.
Jaime Katz: We believe the powersports companies on our coverage list, including Polaris (PII), Arctic Cat (ACAT), and BRP offer attractive margins of safety for long-term investors. Over the past 18 months, these companies have been under duress, owing to missteps in inventory management by certain participants and the uncontrollable effects of foreign-exchange headwinds. We view the newest risk factor, weak demand in key oil-producing regions, as a medium-term risk that could increase volatility materially for these businesses over the next one to three years in tandem with the recovery of futures prices. In our opinion, these temporary headwinds will eventually dissipate, and the North American players will be solidly positioned to at least maintain market share and improve current operating-margin levels.
Our long-term outlook still anticipates industry growth, but we forecast unit sales for traditional powersports business lines will rise more than 2% on average over the next five years with total dollar sales growing slightly higher as some price is taken--slower than the mid-single-digit pace they had grown over the prior five years. We believe there is an economic basis supporting this discretionary spend, with the wealth effect increasing consumers' willingness to purchase these high-ticket items. The U.S. consumer is still riding on rising housing prices, still-higher-than-previous equity prices in the broad stock market, and unemployment at healthy levels.
Jaime M. Katz does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.