Investors seem to doubt that the good times will last at Polaris, the maker of recreational vehicles.
Fourth quarter 2021 sales and earnings were better than expected. And management’s financial forecast for 2022 looks, frankly, excellent.
But the stock didn’t do much immediately after Tuesday morning’s earnings report. This could represent an opportunity.
Polaris (ticker: PII) reported earnings of $2.16 per share on sales of $2.2 billion, while Wall Street was looking for $2.03 per share on sales of $2.1 billion. For 2022, the company expects to earn $10.25 per share on approximately $9.3 billion in sales. Analysts currently expect about $9.86 in earnings per share on $8.7 billion in sales.
Still, the stock was virtually unchanged from Monday’s close at $110.13. Futures contracts on the
Dow Jones Industrial Average
fell by 1.6% and 0.8% respectively.
The stock’s valuation ahead of the news can’t really be blamed for the muted response. The shares are trading at around 10 times 2022 earnings that management told investors, while they have traded at around 15 times estimated earnings for the past few years.
Supply chain issues and inflation are two factors that could weigh on investor sentiment. Fourth-quarter gross profit fell to $445 million from $550 million a year ago.
“The decline in gross margin was primarily due to higher input costs, including logistics, component and raw material prices, as well as plant inefficiencies related to supply chain constraints. , partially offset by higher prices and lower promotional costs,” reads the company’s press release.
However, profits for the year 2021 have increased compared to 2020, and profits for 2022 are expected to increase again. Corporate headwinds aren’t derailing Polaris’ financial results.
Investors, it seems, just don’t think the good times will continue forever. They believe demand for things will normalize as the pandemic subsides and demand for services or experiences picks up.
That probably won’t be a problem for Polaris anytime soon. Polaris dealer inventory is still low, down 70% from pre-pandemic levels. This means higher demand in the future as dealers strive to restock lots. Presold inventory — units that are sold before they reach dealer lots — accounted for about 60% of Polaris’ sales in the fourth quarter, compared with about 10% to 15% before the pandemic.
It just doesn’t look like demand will fall off a cliff as the economy reopens. A conference call scheduled for 9 a.m. ET is an opportunity for investors and analysts to ask how long demand is expected to stay strong.
Write to Al Root at [email protected]