Sector financial performance:

This company, which primarily designs and manufactures power sports vehicles including off-road vehicles and other sports vehicles, has been grouped into off-road vehicles sector in recreational vehicles industry.

It seems that the demand for off-road vehicles by companies in this sector has been picking up in the past two years as indicated by increasing sales volume of related products. As demand increased fast, it seems to be shifting from relatively cheaper product to more expensive products as indicated by the increased average selling price.

The typical gross margin is about 25% and with a SG&A as percentage of sales of 11% the operating margin is about 10% in 2018. The typical enterprise price/sales ratio is 6.

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Company performance:

It seems that the demand for off-road vehicles and snowmobile of this company has been strong and growing in the past two years as indicated by the increase in sales volume of related products.

The first three months of fiscal 2018 compared with the same period of 2017 (ended March 31 2018) 

Organic revenue increased about 10% attributable to increase in volume of off-road vehicles and snowmobile.

Off-road vehicle price increased 4%.

Fiscal 2017 compared with fiscal 2016

Organic revenue increased about 5% attributable to increase of 4% in volume and increase of 1% in products mix/price in off-road vehicles and snowmobile. Motorcycle revenue went down.

Fiscal 2016 compared with fiscal 2015

Organic revenue decreased about 6% attributable to decrease of 5% in volume and decrease of 1% in products mix/price in off-road vehicles and snowmobile.

Its gross margin went down from about 28% to 25% in 2018 due to increase in warranty as a result of product re-call.  With the increased SG&A as percentage of sales (up from 11% to 15% due to increased legal expenses related to product recall), we see a significant decrease in its operating margin (down to 6% in 2018). Its average EBI/share decreased significantly in 2016 due to increased expenses resulted from products recall.

Stock performance

This company is having an enterprise price/EBI ratio of 42. We think that its stock is being relatively fairly valued compared with its expected growth in revenue and considering that the high multiple has been a result of recent  re-call of its products, which reduced its gross margin and caused extra costs of SG&A.