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Good Execution On Arctic Cat's Turnaround Efforts Are Key To Its Future

Sep. 11, 2015 12:41 PM ETArctic Cat Inc. (ACAT) Stock
William Bias profile picture
William Bias


  • Arctic Cat may represent a good investment once it recovers from its recall.
  • Arctic Cat doesn’t possess a great deal of long-term debt.
  • Arctic Cat wants to de-emphasize snowmobiles a little over the next five years.

It's important for long-term investors to develop a guide for doing their investment research. Over the years I have developed questions to guide me in my thinking when researching the publicly traded universe. These questions represent a good starting point before doing more in depth research. Right now let's talk about Arctic Cat (NASDAQ: NASDAQ:ACAT).

1.) What does the company do?

When you buy shares in a company you effectively become part owner of that company. Therefore, it's important for an investor to understand what a company sells. Arctic Cat makes and sells snowmobiles, all-terrain vehicles and side-by-side recreational off-highway vehicles.

2.) What do the fundamentals look like?

Investors should also look for companies that grow revenue and free cash flow over the long-term, retaining some of that cash for reinvestment back into the business and for economic hard times. Excellent revenue and free cash flow growth serve as catalysts for superior long-term gains. Over the past five years, Arctic Cat expanded its revenue 52%. However, its net income and free cash flow declined 95% and 155%, respectively (see chart below). Essentially, Arctic Cat hit a fundamental brick wall in its FY 2015 due to a product recall. The associated legal fees, warranty expenses and executive transition costs hurt fundamental comparisons during this time.

ACAT Revenue (<a href=

ACAT Revenue (TTM) data by YCharts

Arctic Cat is off to a rough start in its FY 2016. In the most recent quarter, the company saw its revenue decline 6% year-over-year. The company swung to a net loss of $1.1 million vs. a net income of $3.6 million the same time last year. Arctic Cat also swung to a free cash flow deficit of $51 million vs. $4.7 million the same time last year. Inventory reductions at the dealer level put a dent in top line growth. Arctic Cat's management said this was planned, but it has an underlying

This article was written by

William Bias profile picture
I have been analyzing stocks since 1992 and a freelance writer since 2012.

Analyst’s Disclosure: I am/we are long 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.

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