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# Polaris Industries: My Initial Take

|Includes:Polaris Industries Inc. (PII)

This article will show you the steps I took to try and find out whether Polaris Industries (NYSE:PII) is overvalued or if the stock still has potential. Please keep in mind that this is my first article, and as such, errors might be made. My goal is simply to show you my thought process, and for you to either criticize or support my logic. So feedback is greatly appreciated.

A quick company summary of the company: Polaris Industries, Inc., designs, engineers and manufactures off-road vehicles, which includes all terrain vehicles and side-by-side vehicles for recreational and utility use, snowmobiles, and motorcycles.

Now, time for the analysis. I'm going to use a formula that takes into account the average Earning Per Share growth over 10 years, and the average PE ratio over 10 years, and the annual EPS the company expect during 2013.

Here's the formula:

Fair Value = {[(Avg EPS growth X Projected EPS) + Projected EPS] X Avg. PE ratio}

Average EPS growth in the past 10 years: 15.7% (Use 0.157 for the formula)

Projected EPS 2013: \$5.20

Average P/E ratio over 10 years is: 15.1

Inputting this data into the formula gives me a value of \$90.85. Now, calculating the PEG ratio using this amount comes out to be 1.11.

The current stock price as of this writing is \$103.17. This is 13.56% higher than my fair value. However, Polaris Industries has shown incredible growth since 2008. For example, from 2009-2010, Polaris posted annual EPS growth of 40%, and from 2010-2011, Polaris posted EPS growth of 50%.

Such increases I think warrant a greater premium on the stock price due to the higher profits. If the price can dip down to around \$93 or less, I will initiate a long position on the company.

On Tuesday, July 23, Polaris will report second quarter 2013 earnings.

This concludes my analysis. Thanks for reading.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PII over the next 72 hours.

Stocks: PII