We're told as children (and even as adults) that you can't
have your cake and eat it too. You can't turn a hobby into a
paying job, and if an activity is fun, there's probably no money
Good news: You can -- and there is.
It's true that the economy has changed our way of life over
the past five years. We're more conscious of saving and
downsizing to match our spending habits. The proliferation of
fuel-efficient automobiles has crossed into a market that was
once thought purely recreational.
Winnebago Industries (NYSE:
are up nearly 75% and 35%, respectively, as baby boomers take to
America's roads. Clearly, recreational vehicles are in full
swing, but there's yet another type of vehicle that hasn't gotten
the attention it deserves: all-terrain vehicles (ATVs).
This category includes snowmobiles, ATVs and utility task
vehicles (UTVs). Sales of UTVs have exploded in the past year:
The two leading UTV manufacturers have posted quarterly earnings
growth of 217% and 185% year over year.
Polaris Industries (NYSE:
has been the undisputed leader in UTV, ATV and snowmobile sales,
while an upstart competitor has been taking market share away
from its larger competitor in the past year and posting better
returns on equity.
In fact, this company has so much potential that the research
team behind StreetAuthority's
Top 10 Stocks
advisory named it one of the Top Small-Cap Stocks To Buy Right
Now in a recent research report.
The company I'm referring to is
Arctic Cat (Nasdaq:
Brand recognition in the snowmobile segment,
aided by its popularity in the Winter Olympics, has
allowed Arctic Cat to increase sales in the offseason by
70% from the same period last year.
Brand recognition in the snowmobile segment, aided by its
popularity in the Winter Olympics, has allowed Arctic Cat to
increase sales in the offseason by 70% from the same period last
year. Sales of Arctic Cat's side-by-side ATVs grew 23%, driven by
the popularity of its Wildcat and Prowler models. For fiscal year
2013, UTV and ATV sales were up 32% from 2012, led primarily by
the ever-growing UTV market where they are generally put to work
in a variety of industries from security to golf course
A case for the short term can be made by looking at recent
Vail Resorts (NYSE:
, a mountain resort company. Vail reported less disappointing
earnings than widely expected recently, and investors haven't
lost a step, sending MTN up 34% this year. Revenues from Vail's
mountain segment -- an environment in which Arctic Cat products
thrive -- was up 13% year over year.
Arctic Cat has had annual earnings per share (
) growth of 78% over the past five years. The future is looking
bright as well, with a price/earnings-to-growth (
) ratio of just 0.81 and a price-to-sales ratio of just under 1.
Arctic Cat holds zero long-term debt and increased its cash
holdings by $16 million, to a total of $40 million. For 2013, the
company has authorized a stock repurchase plan of $30 million in
Risks to Consider:
Seasonal weather changes may weigh on sales, and recreational
sales are highly dependent upon income levels which could face
pressure in the future from growing political concerns regarding
debt levels and the impact of the government shutdown.
Actions to Take -->
The recent earnings miss should be viewed as a buying opportunity
at this price. The company maintained positive guidance for 2014
with EPS between $3.27 to $3.37. The sharp sell-off appears to be
an overreaction, and based on the
relative strength index
, ACAT appears oversold. Arctic Cat now looks to be undervalued
by around 20%.
This article was originally published Oct. 28, 2013.
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