In the semi-finals round of the Growth Portfolio playoffs we have #10 seeded Polaris Industries Inc. (NYSE:PII) taking on #3 seeded Visa Inc. (NYSE:V). Visa is a global payments and technology company that connects consumers, financial institutions, and merchants. Polaris designs, engineers and manufactures off-road vehicles including all-terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and on-road vehicles including motorcycles and small electric vehicles.
The following table depicts the recent earnings reports for each company:
($ in billions)
($ in billions)
Polaris is up 56.32% in the past year excluding dividends (up 57.61% including dividends), while Visa is up 35.83% excluding dividends (up 36.4% including dividends). Both are beating the S&P 500, which has gained 23.57% in the same time frame. This matchup will be played out in a best of seven game series based on the metrics below. For a complete list of all the metrics utilized in the seven game series click here. Not all the metrics will be looked at if a team can win and win early. This matchup will determine the winner which will go on to play for the Super Bowl against either General Motors (NYSE:GM) or Gilead Sciences (NASDAQ:GILD).
Forward P/E is the metric of how many times future earnings you are paying up for a particular stock. The earnings portion of the ratio I utilize is the earnings value for the next twelve months or for the next full fiscal year. I like utilizing the forward P/E ratio as opposed to the trailing twelve month P/E ratio because it is an indication of where the stock is going to go in the future. I like to get a glimpse of the future, but will take note of where it was coming from in the past. Polaris carries a 1-year forward-looking P/E ratio of 20.86 which is fairly priced for the future right now while Visa's 1-year forward-looking P/E ratio of 21.13 is also currently fairly priced. Game One goes to Polaris by a small margin.
This metric is the trailing twelve month P/E ratio divided by the anticipated growth rate for a specific amount of time. This ratio is used to determine how much an individual is paying with respect to the growth prospects of the company. Traditionally the PEG ratio used by analysts is the five year estimated growth rate, however I like to use the one year growth rate. This is because as a capital projects manager that performs strategy planning for the research and development division of a large-cap biotech company, I noticed that 100% of people cannot forecast their needs beyond one year. Even within that one year things can change dramatically. I put much more faith in a one year forecast as opposed to a five year forecast. The PEG ratio some say provides a better picture of the value of a company when compared to the P/E ratio alone. The 1-year PEG ratio for Polaris is currently at 1.16 based on a 1-yr earnings growth of 23.53% while Visa's 1-yr PEG ratio stands at 1.75 with a 1-yr growth rate of 16.52%. Polaris beats Visa in Game Two and takes a two game lead in the series.
EPS Growth Next Year
This metric is really simple, it is essentially taking the difference of next year's projected earnings and comparing it against the current year's earnings. The higher the value the better prospects the company has. I generally like to see earnings growth rates of greater than 11%. Again, in this situation I like to take a look at the one year earnings growth projection opposed to the five year projection based on what I discussed in the PEG section above. Polaris has a projected EPS growth rate of 23.53% while Visa sports a growth rate of 16.52%. Polaris manages to win Game Three and pulls within a game of going to the Super Bowl.
Dividend yield is a no brainer; it must be had in a portfolio. The dividend yield is the amount of annual dividend paid out by a company in any given year divided by the current share price of the stock. In my portfolio I don't discriminate against low yielding stocks as long as they provide excellent fundamental metrics in the form of the forward P/E, the 1-yr PEG and the 1-yr EPS growth rate. Dividends are a way to measure how much cash flow you're getting for each dollar invested in the stock. Obviously, the higher the yield, the better, as long as it is covered by the trailing twelve month earnings. Polaris yields small 1.21% dividend while Visa pays an even smaller yield of 0.73%. Polaris is able to win Game Four and sweeps the series away from Visa.
Although Visa lost against Polaris in an upset, Visa is still a great company with great long-term story. Both companies have excellent short-term and long-term earnings growth potential, hence the reason why they are in my growth portfolio. After beating Visa, Polaris will advance to the next round of the playoffs and play against the winner between Gilead and General Motors.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long GILD, GM, V, PII. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.