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Summary

  • The stock is fairly valued on 2015 earnings estimates.
  • The stock is experiencing tiring technicals.
  • The stock has performed extremely well when compared to my holding Hasbro after my swap-out date in late February.

The last time I wrote about Polaris Industries Inc. (NYSE:PII), I stated:

"I have not initiated my position at the time of this writing but will do so tomorrow morning." Since the time the article was published, the stock has popped 5.13% versus the 0.97% gain the S&P 500 (NYSEARCA:SPY) posted. I'm extremely happy with my purchase in the stock so far. 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.

On January 28, 2014, the company reported fourth quarter earnings of $1.56 per share, which beat the consensus of analysts' estimates by $0.01. In the past year, the company's stock is up 52.91%, excluding dividends (up 54.39% including dividends), and is beating the S&P 500, which has gained 19.82% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the consumer goods sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 25.42, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 17.75 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.29), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 19.63%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 19.63%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 18.33%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

25Feb14

130.55

24.18

16.91

7.72

115

1.24

19.50

25Mar14

137.25

25.42

17.75

7.73

115

1.29

19.63

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 1.4% with a payout ratio of 36% of trailing 12-month earnings while sporting return on assets, equity and investment values of 22.5%, 50.2% and 46.7%, respectively, which are all respectable values.

The really high return on assets value (22.5%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings (for comparison purposes, Polaris has the highest ROA followed by Thor Industries Inc. (NYSE:THO) which sports an ROA of 19.6% and Fox Factory Holding Corp (NASDAQ:FOXF) which sports an ROA of 14.9%).

The really high return on equity value (50.2%) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Polaris is tops followed by Fox Factory Holding Corp which sports an ROE of 38.1% and Thor Industries Inc. which sports an ROE of 29.2%).

The really high return on investment value (46.7%) is an important financial metric because it evaluates the efficiency of an investment that a company makes and if an investment doesn't have a positive ROI then the investment should not be made (for comparison purposes, Polaris is tops once again followed by Fox Factory Holding Corp which sports an ROI of 28% and Arctic Cat Inc. (NASDAQ:ACAT) which sports an ROI of 22.8%).

Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 1.4% yield of this company is good enough for me to take shelter in for the time being. The company has been increasing its dividends for the past 19 years at a 5-year dividend growth rate of 17.2%. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

25Feb14

1.47

36

22.5

50.1

46.2

25Mar14

1.40

36

22.5

50.2

46.7

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock dropping from overbought territory since 06Mar14 with a current value of 52.23 and downward trajectory. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line just crossed below the red line with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($137.25), I'm looking at $139.92 to act as resistance and the 50-day simple moving average (currently $133.02) to act as support for a risk/reward ratio which plays out to be -3.08% to 1.95%.

Conclusion

The stock was hit hard in the early part of the year due to it being a consumer good name that was looked upon as being hurt by weather related issues. But little do investors know that the snowmobile portion of the company should be of help to the company and what was granted to us in late January/early February was a fantastic buying opportunity. Fundamentally, the stock is fairly priced on next year's earnings, fairly priced on earnings growth, and has great near and long-term earnings growth potential. Financially, the dividend was raised 14% last quarter and the financial efficiency ratios are beyond excellent. Technically, it appears the stock is losing steam. Due to the bearish technicals, overall market whiplash taking place, and fair valuation I'm not going to be pulling the trigger on this name at this price right now.

Because I swapped out Hasbro (NASDAQ:HAS) for Polaris in my dividend portfolio it is only fair that I provide an update from the swap-out date. From 25Feb14, Polaris is up 5.12% while Hasbro is up 0.2%, and the S&P 500 is up 0.97%. The trade has worked really well thus far. I still like the prospects of Polaris over Hasbro in the long term and will continue to provide updates.

(click to enlarge)

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!

Source: Polaris Increased Its Dividend 14% Last Quarter, But Is It A Buy?